Supreme Court of India
RAYMOND SYNTHETICS LTD. AND ORS.versusUNION OF INDIA AND ORS.
- Citation
- 1992 INSC 35
- Decided
- 4 February 1992
- Disposal
- Appeal(s) allowed
- Bench
- T K THOMMEN
Holding
Liability to repay excess application money under s.73(2A) arises on the expiry of the 10‑week period from the closure of the subscription lists, and interest begins to accrue after the subsequent eight‑day grace period.
Summary
Raymond Synthetics Ltd. and others issued a prospectus for a public issue of shares and debentures, seeking permission from several stock exchanges to list the securities. The company received massive oversubscription, allotted shares before the statutory 10‑week deadline for obtaining exchange permission, and later faced delays in dispatching refund orders due to a fire and logistical issues. The Union of India and the Securities and Exchange Board of India claimed that under Section 73 of the Companies Act, 1956 the company became liable to repay excess application money on the expiry of the 10‑week period (1 Nov 1990) and to pay interest after an eight‑day grace period, irrespective of the earlier allotment. The Bombay High Court held that liability arose on the date of allotment, but the Supreme Court reversed this, interpreting "forthwith" and the statutory timeline to mean liability arose on the expiry of the 10‑week period and interest accrued after eight days. Consequently, the appeal was allowed and the High Court judgment was modified to reflect the correct dates of liability and interest.
Issues considered
- The date on which liability to repay excess application money under s.73(2A) arises – whether on the date of allotment or on expiry of the 10‑week period from closure of the subscription list.
- Whether interest under s.73(2A) accrues from the date of allotment or from the expiry of an eight‑day period after the liability to repay arises.
- The effect of an appeal under s.22 of the Securities Contracts (Regulation) Act, 1956 on the timing of liability and interest.
- The meaning of "forthwith" and the distinction between "due" and "payable" in the statutory context.
- Whether extensions granted by a stock exchange or contractual terms in the prospectus can alter the statutory timeline.
Legislation cited
- Capital Issues (Control) Act, 1947
- Companies Act, 1956s. 2(31), s. 5, s. 51, s. 60, s. 62, s. 63, s. 73(1), s. 73(10), s. 73(1A), s. 73(2), s. 73(2A), s. 73(2B), s. 73(3), s. 73(3A), s. 73(4), s. 73(5), s. 73(6), s. 73(7), s. 73(8), s. 73(9), s. 74, s. 9
- Companies (Amendment) Act, 1974
- Companies (Amendment) Act, 1988
- Securities Contracts (Regulation) Act, 1956s. 22
Subjects
Companies Act 1956Section 73public issuestock exchange listingexcess application moneyinterest liabilityforthwithappeal under s.22Securities Contracts Regulation Actrefund ordersover‑subscriptiondirectors liability
Judgment
RAYMOND SYNTHETICS LTD. AND ORS. A
j, v.
UNION OF INDIA AND ORS.
FEBRUARY 4, 1992
[DR. T.K. THOMMEN ANDS. MOHAN, JJ.] B
Companies Act, 1956--Section 73--Public Limited company-Listing
shares on stock exchange-Procedure-When allotment of shares becomes
void-When liability to repay application money and interest arises-
Permission-When deemed to be refused or granted.
c
Securities Contracts (Regulation) Act, 1956--Section 22-Appeal-
When lies,-Pending appeal-Effect.
Co11ipanies Act. 1956--Section 73. (JA) (2), (2A), (2B}, 2 (31), 5-
Interest---Payment of--£.'ompany 's lia bi/ ities--D rcwnstances--Si fllation
in pre and pbst Companies (Amendment) Act, 1974-Liability of D
Directors~5cope of-"An Officer in default"~onstruction.
Companies Act, 1956--Section 73(2)-"Forthwith "~onstruction
o.f-Legislative intention.
Companies Act, 19-56--Section 73(1) (2) (3)-Application money- E
Company's right or obligation to credit bank accounts-E{fect-Pwposes
for usages ~(such money.
Companies Act, 195 6~S'ection 73(2)--lnterest-Assessment period
~alculation~5tarting point~onstmction--J,egislative intention.
F
Companies Ac( /95~5ection 73-Ambigiw11s section~onst111cn·on
--Method.
Inte1pretation of Stat11te-A111big11011s section~onstmction (Sec-
tion 73, Companies Act, 1956)
G
Companies Act, 1956---.'iection 73 (2A)-When applicable,-
"Due"~onstruction-"Due" and "payable" not same-"Penal" not
penalty--Adn1inistrative inconveniences cannot be pleaded.
The appellant-company was registered under the Companies
Act, 1956. It obtained the consent of the Government of India to H
481
482 SUPREME COURT REPORTS [1992] 1 S.C.R.
A issue 7,20,00,000 equity shares of Rs. 10 each at par and 33,90,000
fourteen per cent secured redeemable non-convertible debentures of
Rs. 100 each .at par.
One of the conditions attached to the consent order was "The
company shall scrupulously adhere to the time limit of 10 weeks
B from the date of closure of the subscription list for allotment of all
securities and despatch of allotment lettcrs/ccrtific~tes and refund
orders."
On 12.7.1990 Jhe company issued prospectus for the issue of
the shares and debentures, stating therein that the company had
C sought the permission of the stock exchanges at Indore, Ahmedabad,
Bombay, Calcutta and Delhi for dealing in equity shares and deben-
tures in terms of the prospectus; that interest at the rate of 15% per
annum on the excess application money would be paid to the appli-
cants as per the guidelines issued by the Ministry of Finance on July
21, 1983 and September 27, 1985; that the public issue would open
D on August 20,1990 and close on August 23, 1990; and that it would
not be extended beyond August 31,1990.
The issue opened on August 20, 1990. The company received .l ;
26,32,894 applications for equity shares together with an aggregate
sum of Rs. 225,25,51,247 in respect of a public issue of Rs. 25 crores.'
E
The share issue was closed on 23rd August 1990. On October
15, 1990 the Board of Directors of the company approved the ~llot
ment of shares. Prior to.1.11.1990, it secured the requisite permissions
of the stock exchanges at Indore, Ahmedabad, Bombay Caluctta and
Delhi to deal in the shares offered in the prospectus.
F
The company had to despatch 25,50,604 refund orders, which
were printed in Bombay and they were meant to be despatched
from Delhi. The company despatched K,55,226 refund orders from
New Delhi at the rate of approx. 1,00,000 refund orders per day.
G On 26th bctober, 1990 a consignment of 6,69,999 refund or-
ders were despatched from Bombay to Delhi. As a result of a fire
that broke out on the way, many refund orders were destroyed and
about 50% of the consignment w~s missing after the accident.
In consultation with the Madhya Pradesh Stock Exchange and
H the Company's Bank, instructions. were issued by the Company to
RAYMOND SYNTHETICS v. u.o.I. 483
• _... stop payment of all refund orders with a view to avoiding any possi- A
hie fraud or misuse. As a result of the countermanding of all the
refund orders and the printing of new refund orders, delay oc-
curred in the despatch of newly printed orders.
For issuing the refund orders, at the request of the company,
the Madhya Pradesh Stock Exchange granted extension of time till B
November 30,1990 and further extended till 19th December, 1990.
The Bombay Stock Exchange refusing to grant extension of
I' --(
time informed the company that it was bound to pay interest by
reason of the delay in the despatch of refund orders.
c
The refund orders were not despatched until 12th November,
·1990. The Government of India and the Securities and Exchange
Board of Jndia--Respondents· Nos. 1 and 2 respectively, insisted
that the company shoul.d pay interest to the investors for the period
of the delay in making the refund in accordance with the provisions
of section 73 of the Companies Act from 1st November (the expiry D
date of th£ period of 10 weeks from the date of the closure of the
subscription lists) till the date of posting of the refund orders .
.l The company filed a writ petition in the High Court appre-
hending that the Government might direct the stock exchanges to.
delist the shares of the company by reason of its failure to pay E
interest, and also initiate actions against it.
In the High Court, the respondent No. 1 submitted that the
I liability to pay the excess amounts arose on the expiry of 10 weeks
from the date of closure of the subscription lists.
F
The respondent No. 2 contended that the liability arose on the
date of allotment.
The company-the appellant contended that on the facts of the
case, the liability arose only at the end of the period as extended by
the Stock Exchange at Indore in terms of the prospectus. G
The High Court dismissed the writ petition, holding that the
company was liable to pay interest at the prescribed rates for the
period of delay and the liability for same arose on ~he expiry of 8
days from the date of allotment of the shares, and not from the date
of expiry of I 0 weeks, where allotment was made earlier to that
date.
H
484 SUPREME COURT REPORTS [1992] 1 S.C.R.
A This appeal was filed by the Company against the High Court's ;:..._ •
judgment by special leave, on the question, whether the High Court
was right in discarding, for computation of interest, the time limit
of 10 weeks running from the date of closure of the subscription
lists, notwithstanding that the allotment had been made prior to the
date of expiry of 10 weeks.
B
The appellant contended that the company was entitled to re-
tain the excess amount for the period mentioned in the prospectus
and consequently no liability to pay interest could arise until ihe
expiry of that period; that as the Madhya Pradesh Stock Exchange
had extended time for refund till 19th December, 1990, the liability
C of the company to repay the excess amount did not arise until then;
that the interest became payable only after 8 days from the expiry
of the period as extended by the Madhya Pradesh Stock Exchange;
and that the interest was payable as a penalty and therefore a rea-
sonable and rational construction of the statute to be made in re-
gard to the commencement of the liability of the company to repay
D the excess amount by taking into account of the relevant circum-
stances which caused the delay.
The respondents submitted that the liability to repay the ex-
cess amount arose on the date of allotment of the shares, that the
.....
liability arose forthwith and any delay beyond the period of 8 days
E from the day on which the liability arose attracted interest that the
expression 'forthwith' had to be understood as an immediate liabil-
ity ascertainable with reference to the date of allotment, but subjeci
to a period of grace of 8 days.
Allowing the appeal, this Court,
F
HELD : I.OJ. As per Dr. Justice T.K. Thommen:-
A public limited company has no obligation to have its shares
listed on a recognised stock exchange. But if the company intends to
offer its shares or debentures to the public for subscription by the
G issue of a prospectus, it must, before issuing such prospectus, apply
to one or more recognised stock exchanges for permission to have
the shares or debentures intended to be so offered to the public to
be. dealt with in each such stock· exchange in terms of section 73.
[496 GI
H t.02. Sub-section (1) of section 73, as amended by the Com-
RAYMOND SYNTHETICS v. U.O.l. 485
panies (Amendment) Act, 1988 has application only to a company A
intending to offer shares or debentures to the public for subscrip-
tion by the issue of a prospectus. Until this sub-section was inserted,
listing of public issues was not compulsory. (497 B-C]
1.03. Sub-section (lA) of Section 73 as amended by the Com-
panies (Amendment) Act, 1988 makes it necessary for the company B
to state in its prospectus the name of each of the recognised stock
exchanges whose permission for listing has been sought by the com-
pany. [497G)
1.04. Any allotment of shares will become void if permission
is not granted by the stock exchange or each such stock exchange, C
as the case may be, before the expiry of 10 weeks from the date of
the closing of the. subscription lists. The validity of the allotment is
made dependent on securing the requisite permission of each stock
.exchange whose permission has been sought. [497 G-498 AJ
1.05. The liability to repay the application money arises only
upon refusal of the stock exchange to grant the permission sought D·
by the company before ihe expiry of 10 weeks from the date of
closing of the subscription lists. [498A] ·
j
, . 1.06 Tbe~e ls a deemed refusal if permission is not granted
b)' the stock exchange .before the expiry of 10 weeks from the date
of closing of the subscription lists, and upon the expiry of that date, E
any allotment of shares made by the company becomes void. [498B] .
1.07. Sub-section (lA) postulates that any allotment made be-
comes void at the end of 10 weeks fr6m the date of the closing of the
subscription lists if by that time the requisite permission of the
stock exchange has not been obtained. But this consequence is post- F
poned till the dismissal of any appeal preferred under .section 22 of
the Securities Contracts (Regulation) Act, 1956. Nevertheless, the
permission, if not obtained with 10 weeks, is deemed not to have
been granted. [504 F-G]
1.08. It is the legislative intent to delay the result postulated G
under sub-section (IA) i.e., rendering the allotment void, until the
period of 10 weeks bas expired or until the dismissal of the appeal.
1.09. The liability to repay the excess money in the present
case arose on 1.11.1990.which was admittedly the date of expiry of
-> 10 weeks from the date of the closing of the.subscription lists, and H
consequently the liability to pay interest at the rate specified in sub-
486 SUPREME COURT REPORTS [1992) I S.C.R.
A section (2A) arose on the expiry of 8 days from 1.11.1990. [498 C-D)
2.01. From the decision of the stock exchange refusing per-
mission, an appeal will lie under section 22 of the Securities Con-
tracts (Regulation) Act, 19S6. [498C)
-
B 2.02. Pending the decision in appeal, the allotment made would
not be void, and the decision of the concerned stock exchange is
made dependent on the result of the appeal. (498C)
2.03. The fact that an appeal is pending does not postpone
the result contemplated in sub-section (2) in regard to the liability
C to repay the amounts and the interest accruing thereon if the amounts Y
are not repaid within 8 days after the liability arose. (SOSA)
3.01. Sub-section (lA) of Section 73 postulates two circum-
stances in which interest becomes payable, namely, where the per-
mission has not been applied for before issuing the prospectus and
D the company has thus acted in violation of the law or where permis-
sion, though applied for, has not been granted. In the former case,
apart from the other consequences which may flow from the compa-
ny's disobedience of the law, the liability to pay interes~ arises as
from the date of receipt of the amounts, for the company ought not
to have received any such amount in response to the prospectus
E issued by the company in disobedience of the requirements of sub-
section (1). In the latter case, the liability to pay interest does not
arise u.ntil the expiry of 8 days after the company became liable to
repay the amounts received by reason of its failure to obtain the
necessary permission as referred to in sub-section (lA). (499 C-D)
F 3.02. Section 73, as i't stood prior to 197S, contained no spe-
cific provision comrelling the company or its directors to repay the
amounts received in excess of the aggregate of the application money
relating to the shares or debentures in respect of which allotments
have been made. Sub-section (2A) was inserted by the Companies
(Amendment) Act; 1974 inserted to cover cases where permission of
G the stock exchange has been obtained, hut the shares or debentures
have been over-subscribed and the company is consequently in pos-
session of excess amounts. The amended sub-section made the com-
pany liable to repay the excess amounts forthwith, but did not make
the company liable to pay interest on such excess amounts. But a
liability was cast on the directors. If the <!xcess amount was not
H repaid within 8 ~ays from the day the company became liable to
RAYMOND SYNTHETICS v. U.O.l. 487
repay it, the directors were made jointly and severally liable to A
- repay such amount with interest. The proviso lo sub-section (2A),
·which like the proviso <O Sub-section (2), as they stood prior to 1988,
provided that a director was not liable to repay the money with
interest if he proved that the default in payment of the money was
not on account of any misconduct or negligence on his part.
[500 C-El . B
3.03: Owing to the absence of a specific provision imposing
liability on the company lo pay interest on the over-subscribed amounts,
and also owing to the absence of any provision to exempt directors
who were not directly in charge of the administration of the com-
pany and the need lo make listing of public issues compulsory, fur· C
ther amendments to the section became necessary. Accordingly the
Amendment Act of 1988 introduced several amendments to section
73,. one of them being the substitution of a part of sub-section (2A)
making the company and every director of the company who is 'an
officer in default' jointly and severally liable to repay the excess
money with interest. [500 F-H] D
. 3.04. A 'director of a company who is an officer in default'
appearing in sub-section (2A) must be understood with reference to
the definition of 'an officer who is in default' contained in section
2(31) read with section 5. This definition includes the managing E
director or the whole time director of a company. [500 H-501 Al
3.05. The liability imposed under sub-section (2A) on a di-
rector of the company falls only upon a directo.r who is 'an officer
in default', as defined under section 2(31) read with section S(a) (b),
and not upon any other director. The nominees of the Government
·or financial institutions .on the board of directors of the company, F
but not directly in charge of its administration as full time direc·
tors, are exempted from personal liability. (501 A-BJ
3.06. Sub-section (2A) provides for the accruai of interest
and the rates thereof. Unlike sub-section (2B) providing for punish· G
ment by imposition of fine or imprisonment, sub-section (2A) speaks
only of interest which is in contra-distinction to punishment and is
not penal in character. It merely provides a mode of calculation of
the amounts payable. Any consideration with reference to a penal
provision 1s of no relevance lo the liability of the company or its
directors to pay interest in terms of sub-section (2A). [503EJ H
488 SUPREME COURT REPORTS [1992] 1 S.C.R.
A 3.07. Sub-section (2B) concerns solely with default of compli-
-
ance with the requirement of sub-section (2A) namely, repayment of
excess money. Failure to r~pay the excess money as required by
sub-section (2A) visits the company and every officer of the com-
pany who is in default (as defined under section 5) with the stipu-
lated punishment. This is, of course, in addition to the payment of
B interest prescribed under sub-section (2A). [5U3 H-504 A]
3.08. The interest provided under sub-section (2) is payable
to the applicants in terms of that sub-section unless the money is
returned to them within the specified time, notwithstanding the pendency
of an appeal mentioned in the proviso to sub-section (lA). Sub-
c section (3) has to be so understood to be in harmony with the other
provisions of s~ction 73. [506C]
3.09. If the permission for listing sought under sub-section
(1) is not granted, the interest payable under sub-section (2) is at-
tracted. Sub-section (2) says that the liability to repay the money
D received from applicants arises forthwith either where the permis-
sion has not Ileen sought or, having been sought, it has not been
granted. [504 H-505 A]
3.10. The accrual of interest under sub-section (2) is not de-
pendent or consequent on the nullity postulated in·sub-section (lA).
E [505B] .
4.01. The expression 'forthwith' does not necessarily and al-
ways mean instantaneous. The expression has to be understood in
the context of the statute. Where, however, the statute prescribes
the payment of money and the accrual of interest thereon at certain
F points of time, the expression 'forthwith' must necessarily be under-
stood to be immediate or instantaneous, so as to avoid any ambigu-
ity or uncertainty. The right accrues or liability arises exactly as
prescribed by the statute. [502 H-503 A]
4.02. When 'forthwith' is used for determining the time and
G mode of payment of the principal and interest, a liberal or reason-
able construction not to be adopted. The legislature intended the
expression 'forthwith' to refer to a particular day on which the
liability to repay the principal amount arose and that is the day
from which the period of 8 days has to be computed, and on the
H
expiry of that period, interest begins to accrue. [503 B-C] · ....-----·
RA YMONDS SYNTHETICS v. U.0.1. 489
Keshav Nilkanth Joglekar v. The Commissioner of Police, Greater A
Bombay, (1956) SCR 653 and Salim v. State of Wes/ Bengal, [1975) 3
SCR 394, distinguished.
5.01. The right or obligation of the company to keep the money
in the bank is only for the period preceding the decision. of the stock
exchange on the company's request for permission to list. Once the B
permission is expressly or impliedly refused.' ilhe money has to be
returned to the applicants, notwithstanding the·pendency of the com-
pany's appeal. The earlier··part of the sub-section about depositing
the money in the bank is controlled by the latter provision in the
sub-section for return of the money as required by sub-section (2).
This is particularly so by reason of the penalty specially provided in C
sub-section (3) in the event of default of compliance with the re-
quirement of that sub-section. [505 H-506 BJ
$.02. The money credited to the separate bank account can
be utilised for only two purposes:(l) for adjustment against allot-
ment of shares where listing is permitted; or (2) for repayment D
where listing is not permitted or the company is otherwise unable to
allot shares. The company has no right to deal with the money in
any other manner or keep it longer than permitted by the section.
[506 G-H) .
Palmer's Company Law, 24th ed. para 24.31; 1955(1) WLR 1080, E
referred to.
6.01. Interest does not begin to run under sub-section (2)
until 8 days have elapsed from the date of expiry of the period of 10
weeks commencing on the date of closure of the subscription lists.
The fact that the legislature has so provided in cases where permis- F
sion has been refused expressly or by reason of the deeming provi-
sion is sufficient indication of the legislative intent to give the com-
pany reasonable time to repay the money. [507 B-q
6.02. Companies generally make allot~ents as soon as prac-
ticable after the necessary application has been made to the -recog- G
nised stock exchange for permission for ·listing. Upon ihe issue of
the prospectus after making such application, amounts. are received
from the public in. consideration of which allotments are made in
ant_icipation of the requisite permission. Greater the reputation of
the company, larger are the amounts likely to be r.eceived. If per-
mission is not granted, the entire amounts received froin the public H
490 SUPREME COURT REPORTS [1992] 1 S.C.R.
A have to be forthwith repaid. On th( other hand, if permission is
obtained, but the amounts received from the public are in excess of
the aggregate of the application money relating to the allotted shares
ot debentures, such excess amounts are forthwith repayable. Whether
or not permission will be obtained cannot be ascertained until the
period prescribed for the purpose has expired, namely, 10 weeks
B from the dale of closing of the subscription lists. Until the expiry of
those lO weeks, neither the subscribing public qor the company will
be in a position to decide whether or not the.allotments made are
valid. This is a period of uncertainty and it is for that reason that •
the legislature has, in a case of refusal to grant permission, pro-
vided that the liability to repay the application money arises upon
C the expiry of 10 weeks. [507 D-GJ
6.03. The possibility of an appeal being allowed is, not a ground
to delay repayment. It should make no difference whether it is as a
result of the permission having been refused, or permission having
been granted and excess amounts are received by reason of over-
D subscription, that repayment of money has to be made by the com-
pany. In either event, the liability to repay the amounts arises forth-
with on the expiry of 10 weeks from the date of closure of the
subscription lists, and the interest will begin to accrue thereon on .1
the expiry of 8 days therefrom. This construction is, just and rea-
sonable from the point of view of both the investor and the com-
E pany, and has the advantage of certainty, uniformity and easy ap-
plication. [507 G-508 A) . ·
7. The section 73 is not free from ambiguities and doubts.
Having been amended in several respects, it has not finally emerged
with the clarity that admits of easy construction. But the contempo-
F raneous construction placed upon an ambiguous section by the ad-
ministrators entrusted with the task" of executing the statute is ex- _,,. ~
tremely significant. This construction is, perfectly consistent with·
the language and the object of the statute. It is a practical and
reasonable construction, particularly because it affords the com-
pany reasonably sufficient time to complete the formalities for des-
G patch of the refund orders. And the investor who has responded to
the invitation contained in the prospectus is not unduly kept waiting
for the return of the excess amounts due to him. [508 E-GJ
Desh Bandhu Cup/a & Co. & Ors. v. Delhi Stock Exchange Assa-·
ciation Ltd., [1979) 4 SCC 565 and K.P. Varghese v. :ncome Tax
H Officer, Ernalm/am & Anr., (1981) .4 SCC 173, referred to.
· RAYMOND SYNTHETICS v. U.O.L 491
Crawford's Interpretation of Laws, 1989 Ed. -referred to. A
As per Mr. Justice S. Mohan (Concurring)
1.01. Sub-section (2A) of Section 73 of the Companies Act
comes into operation only where permission has been. granted by
the reco'gnised stock exchange or exchanges. The words, "where B
pCrmission has been granted" are of great significance. Therefore,
the contention that on the date of allotment the liability to pay
interest arises may not be correct. Nor again, it would be correct to
contend. that the mechanics of refund liability to pay arises on the
date of allotment since there is a failure of consideration in respect
!)f shares not allotted. (519 B-C] C
1.02. The liability of the company to repay the excess amount
under Section 73(2A) will arise only on the expiry of 10 weeks from
the date of the closure of subscription lists. The interest begins to
accrue thereupon at the end of 8 days. [526A)
D
2.01. The word "due" in the section 73 has been substituted
for the word "payable" in order to make it clear that a mortgagor
.l cannot redeem within the term of the mortgage. The right of re-
demption arises when the principal money .secured by the mortgage
has become due and may be exercised at any time thereafter, sub-
ject of course to the law of limitation. [520 C-DJ E
2.02. "Due", means payable immediately or a debt contracted
but payable at a future time. "A debt is said to be 'due' the instant
that it has existence as a debt; it may be 'payable at a future time"
- ·~
It cannot be contended on the strength of Section 530 'due' and
'payable' is one and the same even under S.732(a). [522 E-F)
Rlack's L~gal Diction01y. (Sth Edition 448), Venkatramiah's Luw
Lexicon and Legal Maxims Vol. I, 713-714; Wharton's Law Lexicon.
14th Edition; Buckley on the Companies Acts. 14th Edition, Volume
F
I, referred to. · G
. Bhaktawar Begum v. Husaini Khanam. (1914)36 All. 195;41 I.A.
· 84; 23 l.C. 355; Bir Mohammad v. Nagonr. [1914) 27 Mad. L.J. 483;
25 J.C. 576 (which over-ruled Rose Ammal v. Rajarathnam. (1900) 23
Mad. 23); Baroda Hoard & Paper Mills Ltd. v. Income Tax Officer.
Circle I. Ward E. Ahmedabad a~d others. 1976 (46) Company Cases H
492 SUPREME COURT REPORTS IJ992] 1 s.c.R.
A 25; Union of India v. Air Foam Industries (P) Ltd.. AIR 1974 S.C.
1265 & 1271 (Para 7) referred to.
3. "Forthwith' i11. not susceptible of a fixed time definition,
and the surrounding facts and circumstances must be taken into
consideration in determining the question, and forthwith may be
B minutes, hours, days or even weeks. It cannot be said that "forth-
with" means E.O. instanti. (526 E-F)
Dickerman v. Trust Co., 176 U.S. 193, 20 Sup., Ct. 311, 44 L.Ed.
423, 4 Tyrwh. 837; Edwards v. Ins. Co .. 75 Pa. 378; Seammon v. Ins.
Co., 101, III 621; 11 H.L. Cas. 337; Bennect v. Ins. 67 N.Y. 274;
Pennsylvanis R. Co. v. Reichert, 58 Md. 261; Meriden Silver Plate Co.
c v. Flory 44 Ohio St. 437, 7 N.E. 753. 7 Dowl. 789" 193, Soutern
Reporter, 339 and 16 Soutern Reporter 33@ 35 Col. I., Laws 1035,
Ex. Secs C. 10, referred to.
Bouvier's Law Dictionary- Referred to.
D 4. It cannot but be held that the payment of interest. is only
compensatory and not penal. Merely because clause 10 uses the
word "penal" it cannot be amount to penalty. (526 F)
1
Mahalaxmi Sugar Mills Co. Ltd. v. Commissioner of Income Tax.
Delhi. New Delhi, [1980) 3 SCR 421, referred to.
E
5. In view of the clear terms of the.statute the administrative
inconvenience cannot be pleaded. [528 B-C]
Sanjeev Coke Manufacturing Co. v. Bharat Coking Coal Ltd. &
Another, (1983) 1 SCR 1000 1029, referred to.
F
CIVIL APPELLATE nJRISDICTION: Civil Appeal No. 3498 of .
1991.
From the Judgment dated 17/18.7.1991 of the Bombay High Court
in Writ Petition No. 2038of1991.
G G. Ramaswamy, Attorney General, V.R. Reddy, Addi. Solicitor Gen-
eral, Anil B. Divan, K.S. Cooper and T.R. Andyarajina, R.F. Nariman,
S.A. Divan, B.R. Agrawala, Vinod B. Agarwala, P.N. Kapadia, Pramod B.
Aganvala, S. Krishanchandani, Dr. Sumant Bhardwaj, Ms. Sanclhaya Mehta
for Mis Gagret & Co., Ms. Sushma Suri, A.M. Khanwilkar, M.P. Bharucha,
R. Karanjawala, Mrs. M. Karanjawaia, Mrs. V.S. Rekha, A.R. Amin, K.J.
H John, Dr. A.M. Singh vi and Ajit Pudussery for the appearing parties.
RAYMOND SYNTHETICS v. U.0.l. [THOMMEN, J.] , 493
The Judgment of the Court was delivered by A
TH OMMEN, J, The question which arises "in this appeal from the
judgment of the Bombay High Court in.writ petition No. 2038 of 1991 is,
when does a company become fi;Wle"to pay interest under section 73(2A)
of the Companies Act, 1956-{!lie "Act"). The answer to it depends on the
answer to the more fundamental and far more difficult question, i.e., when B
does a company become liable to repay the money received from appli-
cants for shares or debentures in excess ofthe·aggregate of the application
money relating to the allotted shares or debentures. If such excess applica'
· tion money is not repaid· within eight days from the day on which the
company and every director 'who is an officer in default' is liable to pay
interest at the specified rates. The period of eight days has to be reckoned C
in accordance with section 74. But it is not clear when exactly does the
liability to repay .the ·excess money arise. Does it arise on the date of the
allotment, as found by the High Court, or on the expiry of l 0 weeks from
the date of closing of the subscription lists, referred to in sub-section (1 A)
of section 73, or, as contended by the company, on the expiry of the
period mentioned in the prospectus? Whichever is the correct date, inter- D
est becomes payable by the company and it.s directors .'in default', if the
excess money is not repaid within the period of grace of eight days from
the date on which the company becomes liable to pay it. When does that
liability arise is the crucial que~tion.
We .shall presently examine the relevant provisions of the section, E
but before we do so, it may be of interest to refer IJriefly to the circum-·
stances ii\. which the alleged liability of the appellant company has arisen .
. The appellant is :i company registered under the provisions of the
·Companies Act, 1956". The company obtained the consent of the Govern-
ment of India vide its Order dated May 31, 1990 to issue 7,20,00.,000
equity shares of Rs. 10 each at par and 33,90,000 fourteen per cent se- F
cured redeemable non•convertibfe debentures of Rs. 100 each at par. This
Order was, made by the Goveiiiinent in exercise of its power under the
Capital Issues (Control) :Act, _!947: Pile of the conditions attached to the
order~s: _
"The company shall scrupulously adhere to the time limit of G
10 weeks from the date· of closure of the subscription list. for
allotment of all sec.urities and despatch of allotment letters/
certificates and refund orders."
---· A prospectus was issued by the company on 12ih July, 1990 for the
issue of the aforesaid shares and debentures. The prospectus stated, amongst H
494 SUPREME C1)URT REPORTS (1992) I S.C.R.
A other things, that the company had sought the permission of the stock
exchanges at Indore, Ahmedabad, Bombay, Calcutta and Delhi' for dealing.
in equity shares and debentures in terms of the prospectus; .that interest at
the rate of .15% per annum on the excess application money will be paid
io the applicants as per the guidelines issued by the Ministry of Finance
on July 21, 1983 and September 27, 1985; that the public issue will open
B on August 20, 1990 and close on August 23, 1990; and that _it would not
be extended beyond August 31, 1990. When the issue thus opened on
August 20, 1990, it received overwhelming response as a result of which
it was about 40 times over-subscribed. The company received 26,32,894
applications for equity shares together with an aggregate sum of Rs.
225,25,51,247 in respect of a public issue of Rs. 25 crores. In view of this
C public response, the share issue was ciosed on 23rd August, 1990. On
October 15, 1990 the board of directors of the company approved the
allotment of shares. Shortly thereafter, it secured the requisite permissions
of the stock exchanges at Indore, Ahmedabad, Bombay, Calcutta and
Delhi to deal in the shares offered in the prospectus. These permissions
were obtained prior to November I, 1990. The company had to despatch
an
D 25,50,604 refund orders of aggregate value of well over Rs. 200 crores.
These orders which were printed in Bombay were meant to be despatched
from Delhi. The company despatched 8,55,226 refund orders from the
Sarojini ·Nagar Post Office, New Delhi at the rate of approx. 1,00,000 J.
refund orders per day. On 26th October, 1990 a consignment of 6,69,999
refund orders bad been despatched from Bombay ·to Delhi in a brake van
E oftbe Paschim Express. A fire broke out on the way in the brake van as a
result of which many refund orders were destroyed. Almost 50% of the
consignment was missing after the accident. In consultation with the Madhya
Pradesh Stock Exchange and the Company's Bank, instructions were is-
sued by the Company to stop payment of all refund orders with a view to
avoiding any possible fraud or misuse. As a result of the countermanding
F of all the multi-coloured refund orders and the printing of new refund
orders with distinctive colours etc., delay occurred in the despatch of
newly printed orders. At the request of the company, the Madhya Pradesh
Stock Exchange granted it extension of time till November 30, 1990 for
issuing the refund orders. Time for this .purpose was further extended by
that stock exchange till 19th December, 1990. The Bombay Stock Ex-
G change, however, refused to grant extension of time. It further informed
the company that it was bound to pay interest by reason of the delay in the
despatch of refund orders. The Securities and Exchange Board of India,
the second respondent, called upon the company by its letter dated March
13, 1991 to pay interest to the investors at varying rates for the period
from lst November (which is when the period of 10 weeks from the date
H of the closure of the subscription lists expired) till the date of posting of
RAYMOND SYNTHETICS v. U.0.1. [THOMMEN, J.] 495
the refund orders. The refund orders were not despatched until 12th No- A
vember, 1990. The Government of India and the Securities artd Exchange
Board of India insisted that the company should pay interest to the inves-
tors for the period of the delay in making the refund in accordance with
the provisions of section 73. Apprehending that the Government might
direct the stock exchanges to delist the shares of the company by reason
of its failure to pay interest, and also initiate actions against it, the B
company filed a petition in the High Court under Article 226 of the
Constitution, but it was dismissed by the impugned judgment.
The Bombay Stock Exchange seems to have understood that the
liability of the company arose on the expiry of I0 weeks after the date of
closure of the subscription lists. Paragraph 23.2 of its publication of March C
1991 quotes the condition mentioned in the Order of the Government of
India dated 31.5. L990 (which we have extracted above) to the effect that
the liability of the company for despatch of refund orders arose only at the
end of I 0 weeks from the date of closure of the subscription lists.
Jn the High Court, the Union of India and the Securities and Ex- D
change. Board of India appeared to have taken a divergent stand on the
question. While the Government of India submitted (as disclosed in its
affidavit, and as referred to by the High Court in the impugned judgment)
that the liability to pay the excess amounts arose on the expiry of 10
weeks from the date of closure of the subscription lists, the Securities and
· Exchange Board of India contended that the liability ar~se on the date of E
allotment. In the present appeal, however, the Union of India supports the
stand of the Securities and Exchange Board of India. On tlie other hand,
the company contended that, on the facts of this case, the liability arose
only at the end of the period as extended by the Stock Exchange at Indore
in terms of the prospectus. The High Court. held:-
F
11
•• .In our· judgment, there is no difficulty in fixing the date
from which the liability of the Company to make repayment
arises. In a case where the allotment is completed before ex-
piry of the I 0 weeks, then from the date of allotment and in
case where the allotment is not completed till the expiry often
weeks from the date of closure of the subscription list, then G
from the date of expiry often weeks ... "
The reason stated by the High Court for coming to this conclusion is
that the company knew what the excess amount was on the date of allot-
ment and there was no reason why the comp'lllY should delay payment till
->-:... the end of I 0 weeks in case the allotment was made earlier. The High H
Court says -
496 SUPREME COURT REPORTS [1992] I S.C.R.
A " .. .In cases where the allotment is completed before expiry of
ten weeks, then the Company very well knows the excess amount,·
which is to be repaid and consequently the liability accrues
forthwith to repay the said amount. In case the Company fails
to repay the amount within the gra~ period of eight days, then
the Company would be liable io pay interest to the investor
B inspite of the fact that period of ten weeks from the date of
closure of the subscription list is not over... ".
The High Court thus held that the comp"lmy was liable to pay interest
at the prescribed rates for the period of delay and the liability for the same
arose on the expiry of 8 days from the date of allotment of the shares, and
not from the date of expiry of I 0 weeks, where allotment was made earlier
c to that date. The High Court did not accept the contention of the company
that the time having been extended _by the Madhya Pradesh Stock Ex-
change till 19th December, 1990 in accordance with the relevant provi-
sions of the prospectus, the company had no liability to pay interest.
D The question for consideration, therefore, is whether the High Court
was right .in discarding, for computation of interest, the time limit of 10
weeks running from the date of closure of the subscription lists, notwith-
standing that the allotment had been made, as in the present case, prior to .
the date of expiry of I 0 weeks.
E 'Listing means the admission of the securities of a company to
trading privileges on a Stock Exchange. The principal objectives of listing
are to provide ready marketability and inipart liquidity .and free negoti-
ability to stocks and shares; ensure proper supervision and .control of
dealings therein; and protect the interests of shareholders and of the gen-
eral investing public'. (See para LI of the 'Stock Exchange Listing',
F publication of Bombay Stock Exchange of March, 1991 ).
A public limited company has no obligation to have its shares listed
on a recognised stock exchange. But if the company intends to offer its
shares or debentures to the public for subscription by the issue of a pro-
spectus, it must, before issuing such prospectus, apply to one or more
·G recognised stock exchanges for permission to have the shares or deben-
tures intended to be so offered to the public to be dealt with in each such
stock exchange in terms of section 73. We·shall now read the provisions
of section 73 insofar as they are material:-
Sub-section (I) of section 73 reads:
H
RAYMOND SYNTHETICS v. U.0.1. [THOMMEN, l.] 497
"S. 73(1). Every company intending to offer shares or deben- A
tures to the public for subscription by the issue of a prospectus
shall, before such issue, make an application to one or ;more
recognised stock exchanges for permission for the shares or
debentures intending to be so offered to be dealt with in the
stock exchange or each such stock exchange."
B
This sub-section was inserted by the Companies (Amendment) Act,
19a8 with effect from 15.6.1988. It has application only to a company
intending to offer shares or debentures to the public for subscription by
the issue of a prospectus. Until this sub-section was inserted, listing of
public issues was not compulsory.
The original sub-section (I) was substituted by the Companies (Amend-
c
ment).·Act, 1974 with effect from 1.2.1975, and substituted again and
renumbered as the present sub-section (IA) with effect from 15.6.1988 by
the Companies (Amendment) Act, 1988. Sub-section (IA) reads:
"73(1A). Where a prospectus, whether issued generally or not, D
states that an application. under sub-section (1) has been made
for permission for the shares or debentures offered thereby to
be dealt in one or more recognised stock exchanges, such pro-
spectus shall state the name of the stock exchange or, as the
case may be, each such stock exchange, and any allotment
made on an application in pursuance of such prospectus shall, · E
whenever made, be void if the permission has not been granted
by the stock ex'change or each such stock exchange, as the
case may be, before the expiry of ten weeks from the date of
the closing of the subscription lists:
Provided that where an appeal against the decision of any
recognised stock exchange refusing permission for the shares F
or debentures to be dealt in on that stock exchange has been
· preferred under section 22 of the Securities Contracts (Regula-
tion) Act, 1956 (42of1956), such allotment shall not be void
until the dismissal.of the appeal." ·
This provision makes it necessary for the company to state in its G .
prospectus the' name of each of the recognised stock exchanges whose
permission for listing has been sought by the company. Any allotment of
shares will become void if permission is not granted by the stock ex-
change or each such stock exchange, as the case may be, before the expiry
of 10 weeks from ihe date of the closing of the subscription lists. The
validity of the allotment is thus made dependent on securing the requisite H
498 SUPREME COURT REPORTS [1992] I S.C.R.
A pennission of each stock excl\ange whose pennission has been sought.
The liability to repay the application money arises only upon refusal of
the stock exchange to grant the pennission sought by the company before
the expiry of I 0 weeks from the date of closing of the subscription lists.
This is clear from sub-section (IA) read with sub-section (5). There is a
deemed refusal if pennission is not granted by the stock exchange before
B the expiry of I 0 weeks from the date of closing of the subscription lists,
and upon the expiry of that date, any allotment of shares made by the
company becomes void.
However, from the decision of the stock exchange refusing permis-
sion, an appeal will lie under section 22 of the Securites Contracts (Regu-
C lation) Act, 1956. Pending the decision in appeal, the allotment made
would not be yoid, and the decision of the concerned stock exchange is
made dependent on the result of the appeal. What is significant is that it is
the legislative intent to delay the result postulated under sub-section (IA),
i.e., rendering the allotment void, until the said period of I 0 weeks has
expired or until the dismissal of the appeal.
D
Sub-section (2), as amended in 1988, reads:
"S. 73(2). Where the permission has not been applied under
sub-section (I) or, such pennission having been applied for,
has not been granted as aforesaid, the company shall forthwith
E repay without interest all moneys received from applicants in
pursuance of the prospectus, and, if any such money is not
repaid within eight days after the company becomes liable to
repay it, the company and every director of the company ,who
is an officer in default shall, on and from the expiry of the
eighth day, be jointly and severally liable to repay that money
F with interest at such· rate, not less than four per cent and not
more than fifteen per cent, as may be prescribed, having re-
gard to the length of the period of delay in making the repay-
ment of such money."
This sub-section requires the company to repay 'forthwith' all money
G received from applicants in response to the company's prospectus either
where the company has not applied for permission of the recognised stock
exchange for listing or .where permission has been applied for but not
granted. If the company· !las issued a prospectus without seeking pennis-
sion for listing, it has clearly acted in violation of the mandatory provi-
sions of the Act, and the company has no right to receive or retain any
H amount by ·vay of subscription in pursuance of its prospectus. On the
-I RAYMOND SYNTHETICS v. U.O.l. [THOMMEN, J.] 499
•
~ other hand, where permission has been sought, but has not been obtained A
within IO weeks from the date of closing of the subscription lists, thereby
·~
renderi:ig void any allotment made, the company is bound to repay all
such money forthwith, but without interest. Jn the event of such money
not being repaid within 8 days after the liability to repay arose, the com-
pany and every director of the company who is 'an officer in default' are
made jointly and severally liable to pay the principal amount as well as B
interest thereon as from the date of expiry of the said 8 days. The interest
is payable at the prescribed rates varying from4% to 15%, dependent on
the length of the period of delay in making such repayment. This sub-
section thus postulates two circumstances in which interest becomes pay-
able, namely, where the permission has not been applied for before issu-
ing the prospectus and the company 'had thus acted in violation of the law c
or where permission, thought applied for, has not been granted. In the
former case, apart from the other consequences which may flow from the
company's disobedience of the law, the liability to pay interest arises as
from the date of receipt of the amounts, for the company ought not to
have received any such amount in response to the prospectus issued by the
company in disobedience of the requirements of sub-section (I). In the D
latter case, the liability to pay interest does not arise until the expiry of 8
days after the company became liable to repay the amounts received by
reason of its failure to obtain the necessary permission as referred to in
sub-section (1 A).
It may be mentioned in this connection that, prior to the amendment E
of 1988, sub-section (2) did not make the company liable to pay interest
oti the amounts repayable by it in terms thereof, but only the directors
were liable for payment of such interest, apart from the principal amounts.
TJ1e proviso to the sub-section as it stood prior to 1988 exempted a direc-
tor from such liability if the default was not caused by his misconduct or
negligence. As a result of substitution of a proviso of the sub-section by F
~ the Amendment Act of 1988, the company atid every director of the
"' company 'who is an officer in default' are made Jomtly and severally
liable for payn1ent of the principal a1nount as well as inten~:st.
We shall now read the crucial provision which is sub-section (2A):-
G
"S. 73 (2A). Where permission has been granted by the recog-
nised stock exchange or stock exchanges for dealing in any
shares or debentures in such stock exchange or each such stock
exchange and the n1oneys ·received from applicants for shares
or debentures are in excess of the aggregate of the application
---~ ... moneys relating to the shares or debentures in respect of which H
500 SlJPREME COURT REPORTS (1992] 1 S.C.R.
A allotments have been made, the company shall repay the mon'' ·
eys to the exient ofsuch excess forthwith •without interest, arid ·
if"such riioney is riot rep~id·witbin eighftlays, from the date.:,1
the eom'pany bec<imes liable to pay it, the company and every .
director of the: company ·who is· an officer:-in -Oefault shall,. on
and from the expiry of the eighth day~ be jointly and severally .
B · 1iable to repay !hilt mbney with 'interest at such rate,. not lesser
than four per· cent and not mon; than fifteen• per cent,· as may ,
. be prescribed having regard to the length of the perit>d of
·delay in making the repayment of such money". · ' ,... ·I
· · l0 I' "' · ; .· : - '·' ·_ ,
Sub-secti<?n (2A) ~as inse~cd by. the Comp1111ie~ (AIJ!endment) Ac\,
1974 which came into force w.e.f. 1.2, 1975. S~ction 73, as it stoO<j prior :
c to 1975, cont~ned n9 spllcific pro~isi'o~ ~oinpeying the coripany or _i,is.'
directors to repay th.e am.ou9ts rece,ived in e~cess of the a~regate· of \he
application .money
·
relating
I·
to the
· - ·
shares
'·
or
.
debentures
•''
in respect
-. -, , , •,
of· ivhich
1"
allotments· have been. made. Sub-section(2A),was inserted, to cover cases·
where permission of the stock exchange has l)een obtai~ed, l)ut the s.har~s
or debent~res h.ave been over,subscri)led and the cpmpan_y is qon5equenily .
D
in possession .9f excess .iimomi\s. i1ie. sub~section.: as i~serted 'i1iJn~. ,
made the company liable .to repay.Hie, excess am,oun\s fortnwi~\1, but. d.id ·.
not make the company liable to pay. interes.~ 01) ~'!ch ~x.c~f,S amouws., .But ..
a liability was cast on the directors. If the excess amount }Vas .t\ot repa\d ..
within 8 days from the day the company became liable to repay It. the
E direct.ors were. made jointly and severally liable to. re(Yo\y such aii:iount
with interest. '.fhe proviso to s.ub-s~ction (~A). wh\oh 'tike:the,piovl~o)o
sub-section (2), as they stood .prior to. 1988, prov.ided that a. d,ire.c.tor was·
not Ii.able to repay the money with interest if he proveci that the default in ..
payment of the money w:is not on account of ·any mjsctmduct or 'iieg!F.
gence on bis part. · · , · ·' · · ·· ·'
'.fl) i< • L :: :.':·- ,;,
F · ·1 . • ' , ! •' · · _ • . , , ·· · •r<
Owing to the .absenee
.
of a . specific pro~isio11 imposing liability on.'
.· ,.. . . -·l•
the company, to pay mtere~t on the. ove.r-subs.cribe.d ~mounts, an~. als<;>
owing to the absence of any.provision to exempt directors wh,o _were not ,
. • . .. - .• .. . : j (, _, .. ,,, .... ' ' _,
directly in charge of the administration of the company and the need to
make listing ·Of public issues SO')lPUISO!y, furU1er_ awendl)l.entf}o the sec-
G' tion beca1ne necessary.
· ' '' . , :_· · I · "'I , · ,. . . . . ·- ! ; '
. Accordingly the A)nepdmen,t.Act pf J98,8 introduced several amend-
ments to secti~n 7J, one of them, being the.,sul;>~tituilon of~yart of sub-
section (4Al ll)a~in~,th~ compan~ and e~~ry ,dir,ect!]r of1!1e,,company who
is 'an, offi,cer ,i11 default' jointly.a,od ~everally liabl~ to repay ,the excess
H money with interest. A,'pir~ctor of a_,company iyh,o. is .~n <?f~cer in de- .. ·"
fault' appearing in sub-section (2A) must be understood with reference to
\
>f.'1 ': ! !:RAYMOND S\1Nll'HJ:iTIC:s,,11, U.O.LfiTHQMMEN,J.] 50}::r
thei:definition·rof !a1h.offioer,,whb ,.is m,default:.,cqntaineq,:ill 1s,eption 2(3 I) · Aj.
read• ,;/itlnsectiom;5.> 1T,his definitio\I in~ludes ;t,h~ m~nagil1& ~,r11,9tor or the
- wholetimll ;director·,ofra :company .. ,$0. u11c!erstood,. t~e,. li1'!1ility imposed
under.·.sub•sectidnl'(2A1) .on1l!< director ,of;t~~,,cqmpany.Jal)s OJl,IY upon a
dire'cfor whcl'.is/an officerdn·:default'; as de.fined under sectio!! 2(31) read
with1;section• 5(a)< {b), and: not upon any .other jlire<;tor;. Jhe ,nQminees of
the'.GovemmentrOf\financial,,instituti 0ns .on \he., l:lo.ard qf dirn<;tors of the 8 1 '
company, but. not directly in charge of its aqministq~tion, as full time
ditectOr~;1ar.i;;eX:e;mpted from personal liability. The rate.of interest pay-
able under sub-section (2A) is, as seen above, not less than 4 per cent and
not1mbte;than11r5;per";·cent.i:i .11<i:1 J.;:1r1q. ;,~,.n.11.,·; :-.;~~~ Ji:·,;,:;"q. ,,.,1 !d
.::::J•.iff1'J'.;'."Ji rlt0j ii~! :";~~f!t:.flJX,l ·))(i)!'; f\.'-,.~fJf:!\1 ·i>,r1ibgf~'] c,:!)I ·rJ ;·r;bfl-'·di;'1 ~
111 •1cTbe1subfsection~l'IJQuires :th~:;eompan¥ to ,repay,\!Je,pxets\lbfc.ribed ; C·:
amounts; These:amounts. are.,paid,by,,~rsol'ls1 who ,h~y,e1re$poq<!~\l !9)~%
prosjieCttis . whicl:i,was ,Issued :by lh\' ·company,;af_ter,,ma~iµg aJI .appli<;a,ti,ql] ,
for permission in accordance with sul>-section-(1): B!!l•Wh~11 th,ct~ubsc,i:iP.n
tion lists are closed, the excess money is ascertained.with reference to the
actual1aHotments mader and so: it, becomJls repayabl~ as .the ,company has
no<tight to rJetain,it" IT:he question is, ,for,the: P\ITPO~,of:computj1,1g int~re,st,,, Q
did cit bticome repayable upon, the date.of;allotmen1 1 as:found 1by 1 t~e l:li@1•
Court and as contended,,by:.the.respondents, 1pr. Qn· some. o.~he.f.AAY· '" ,,, .,,,, .•
The Additional Solicitor General, appearing for the Union of India,
Mr11K\STCooper11fonthe S_ecorities:.&r Exchange 1Board;<;>frJn<lja, Mr. T.R.
Aiidhyarujirlivrfor the' Bombay, siock Exchange and, pr."t\;\\ll•rSinghvi, for E;
one of the iritecveners.,submit:thatitheliabilityJo1r;epay,~he ,exqess amount
arises on the date of allotment of the shares, for the statute ·says that the
li~b'W1Y''~ri~~s'.';~f\~*lth'a~\l·'ati~.~biafh~yoiid 1
'i!ilperl&!'Of1 8 ila'ys 1from.
th,q 1~Y. ·R~l1 ~illqtj: t~gH~b~)'!tY, 1#~ ~ttl:aciS'lnte~Jst'.
1 7 1
Th~ ·~xP~WSJ8tt '~0#4~th':
1
h~~· ~~~&e. µn~a~fS,tO~
1
"~s~:al1 .-l'i\'.i,~i~iJt~ 11i~b11it~·
1 1
iStert~Irtta.bjH
1
·'with reter2 1
1
e1'tC~' ~~~tfi~~4at.~ hf'alibtM~~t'.; ~ut ~.il1Jjg8r .tb ~'.~'fibi(o fgnl~ ofi':iiitSlS.J_,, fllJ Fi
1 1 1
1 r:D!1.,_,.·, ~._,, ,:~ir rl! o;:: Jl•J;f! 'Jf'1 Iii; ~.1 :?:Hi i '.1iun~lc 'J'f! ~() !n~rn:(!HJP'il
1
~- di :W. XriH:If,
1
D~&iilii, t;p~~ltHHg i8Pthr~·:·bom1~an' 1 ~!o·frlthJ 0t~er 6ana;·; 1
c~iit~~ld'S~tllat ~ i1Juc6/~~fil~Y-::1s. ght itled· :tb! rjef~ih tile'.·e~6~SS ·:ronaUhi 'f'Or'the''
11
1 1
1
1 1 1
~.ri~d'.~~(~ntloW¥d~.~~ ! t~'i· pfg~p~CtU~ iand tSn~t]h ~DtlY :;.;0 ~1tabillt~ ''td; pay)
i·llt~ ~~·t ~all:'al;iS~ Uhifi ·fue r.~Xpiff ·6f tH~l')periH~. PfO~Ctu~ 1 is1(aH'·'iHSttil~r1
1 1
m~~ )i~g1~¥Jrb1 1d .i U~'Ct~i.1 k~SiioHJ1 166~1lbif1 ihb ~JX'6t11aiid1·a1i. staretft~fit'S1 "cdrit3irie1d G.1 J
i~\H~ h~~ 'fh~t lgfi~:n~~iht'J~_\to' 6~' iil~~H~d~l}y 11ie' ~tiiH1tg'..t the"'ifMtnl~i Of tile')
pff3~15e2fl..1s :~r~ 1 b'i'Ndi~:g 1 Hot1001~l~j JpJ"' 1th~'<bb'tnPMiY';hhf·hIS01 ·upbtr 1pers8n~ 1
who deal with the company in pursuance of the prospectus. One of th'oifo1
t~f111S GOJl.Cell)S ~he,repaYl)lenl. of excess money. It re(!ds:- .
.
vllh (ll1.'.~(:J;lbh !vn ;::~-.uu !Iii _1.{fj)!f)t (i(.lJ~J~'~;qz l :Jfii rj;f!! /lfli <:'.i !/
:'.:i.' rn-..
.-1.Jffl(t,,! ::i•1,
1
i.~o:~:~·~.:\~'·~~~ - ~tt ~gi1!Cait,iJ;~ ~\$ ')rt!)~~te6' i~:rfuii~ct11:e 1 WtiQi~ 6fithe1
1 1
.-:.J,_J1tJ~':J1q ':H:Ri.1>::: ':.!f!J .i:1t·J·111;1! .'..i1Jd I/ .:.-iluf1>k ~;rlJ 1o i1··}iitd').
H;
I
502 SUPREME COURT REPORTS [19921 1 S.C.R.
A application money received will be refunded and where an
application is rejected in part, the balance, if any, after adjust-
ing money due in the manner provided earlier in this Prospec-
tus on Equity Shares/Debentures allotted will be refunded to
the applicants within ten weeks of the date of closing of the
Subscription List or in the event of unforeseen circumstances
B within such .fitrther time as may be allowed by the Stock Ex-
e/range at Indore"
(emphasis supplied)
In the present case, counsel points out, time for refund had been
extended by the Madhya Pradesh Stock Exchange till 19th December, -y
C 1990. Accordingly the liability of the company to repay the excess amount
did not arise until then. In the circumstances, interest became payable
only after 8 days from the expiry of the period as extended by the Madhya
Pradesh Stock Exchange.
If Mr. Dewan's argument were to be accepted, the company would
D have incurred no liability to pay interest. for time had been extended by
the Madhya Pradesh Stock Exchange. But this argument is clearly con-
trary to the provisions contained in su.b-section (4) ofsection 73 of the· Act
which reads:- ..l.
"S. 73(4). Any condition purporting to require or bind any
E applicant for shares or debentures to waive compliance with
any of the requirements of this section shall be void".
ln the teeth of that sub-section, Mr. Dewan's argument on the point
is totally without merit. Even if sub-section (4) had not been inserted in
section 73. Mr. Dewan's argument in this respect would have been equally
F unsustainable. for no agree1nent can defeat or circun1vent a rnandatory
requirement of the statute. This is all the· more so in view of section 9
which specifically provides that the provisions of the Act override the
111e1norandun1 or articles of association of the con1pany or any agreen1ent
executed or resolution passed by it. The statute requires the co1npany to
pay interest in terms of sub-section (2A). That provision says that the
G company should pay excess money forthwith, failing which interest be-
con1es payable at the end of 8 days therefro1n. Any inconsistent provision
in the prospectus is unenforceable and it can be of no avail to the co1n-
pany.
It is true that the expression 'forthwith' does not necessarily and
H always 111ean instantaneous. The expression haS to be understood in the . . _ . ....__
context of the statute. Where. however, the statute prescribes the payment
RAYMOND SYNTHETICS v. 110.1. [THOMMEN, J.J 503
•
of ritoney and the accrual of interest thereon at certain points of time, tue A
expression 'forthwith' must necessarily be understood to be immediate or
instantaneous, so as to avoid any ambiguity or uncertainty. The right
accrues or liability arises exactly as prescribed by the statute. Decisions
such as Keshave Ni/kanth .Toglekar v. The Co111111issioner of Po/ice, Grearer
Bo111hay, [1975] SCR 653, and Salim v. Stare of West flengal, [1975] 3
SCR 394, deal with the expression 'forthwith' in the context of preventive B
detention demanding a liberal or reasonable construction. Bu.t that is not
the construction which has to be adopted when 'forthwith' is used for
detennining the time and mode of payment of the principal and interest.
The legislature intended the expression 'forthwith' to refer to a particular
-·c day on which the liability to repay the principal amount arose, and that is
the day from which the period of 8 days has to be computed, and on the C
expiry of that period, interest begins to accrue.
It is further contended on behalf of the company that in any view
interest is payable as a penalty and, therefore, a reasonable and rational
construction has to be placed upon the statute in regard to the commence-
ment of the liability of the company to repay the excess amount. Relevant D
circu1nstances which caused the delay 1nust be taken into account in this
regard. There is no. substance in this contention. As stated earlier, sub-
section (2A) provides for the accrual of interest and the rates thereof.
Unlike sub-section (2B) providing for punishment by imposition of fii1e or
imprisonment, sub-section (2A) speaks only of interest which is in contra-
distinction to punishn1ent and is not penal ·in character. It 1nerely provides E
a mode of calculation of the amounts payable. Any consideration with
reference to a penal provision is of no relevance to the liability of !he
company or its director> to pay interest in tenns of sub-section (2A).
Sub-section (2B) on the other hand provides for punishment. It reads:-
F
"S.73(28). lf default is made in complying with the provisions
of sub-section (2A), the company and every officer of the
company who is in default shall be punishable with fine which
inay extend to five thousand rupees, and where repay1nent is
not made within six months from the expiry of the eighth day,
also with imprisonment for a term which may extend to one G
year'' .
. This sub-section concerns solely with default of compliance with the
requirement of sub-section (2A) namely, repayment of excess money.
Failure to repay the excess money as required by sub-section (2A) visits
the company and every officer of the company who is in default (as H
-,
'SUPREME COURT REPOlffS ., <-' '-(19921 I S.C.R.
•
A defined'uhdersection 5)with·the stipulated punishment. 'lihis is, of,course,
-
in addition to the_payment of intereSI prescribed-undehsub-Sl'etion:(ZAl. ,
_, ',1'r .• •n:'·i,·:_..:i·· ,.11. 1 :1:~, . , ,- ~;i( 1•_ ''.· ·.( ~-- ~ .•.-~ !;\j'!r~';·
-,. · Sub-section (5), as it stood prior to _1-.2.1975, read;1;: ·. ·, " · . , . "J<'
· ·" · .""S.73(5). For the purpose ofthis·section, penjlission shaU.n()t
B · • .·'1 'be deemed to be refused ifil'is-intimated that the: application
"· , •fcir penn-ission though•not.. at preseiit granted; .will be1.g;iven
•·: ;)· ..·. -: furthercOnsider"atiOn" .. _j ~·' ~.: .s:rt. · 1 ~-,.. :·;•_•n.,.,;;.~·11,: ,,;·
' 'Thi~ !s~b'.sddtio~ ~as· s!l6siinlted 'by iii~ ,Gom'ilanies (..\lil~il~;hjerlh
1
'·. · '
'· · , ' - · '· '· • · • ?- ' , l'. ,. ' •1 ·. - · ·1 ·•'I r , ·1 '.• - ::1l ··r! _1
A91\ 1~71-vit~.~tfe~t from)-~: 1975 rea.~!~g ~~foJ,l~~~/ .,, 1 r! .; . · ,, :', 1,
c . ; .·. . '.' ;.,_ ' .. . ', ... , .· 'n ' ·-· - i
, "S.73(5). For the puqjoses of this section,' it sball' be tleenieil
., , ·\ 1 . . 1· .. I'' . ~ . : ~, 'i
that permission has· noi' been grani~H" if th~ 'kpi)ilcah&n "rcir
,, , , 1 {7;r~si~r1.~1~~~U~-~:~h~~f( r~~i be~~'~,\S~SJ~~ ,9f Wi\\lin the
! . -··~,·- pe_ ; i _·,, .1'.! ,.. ~···. ). i --~ 1; ., ' ,i;-_'/;(_ ··! t-'~! 1,i
:·, ;.
·,;, .. Sub-seciion{I) refemidto -in sub'-section'(5).cas substituted!On··li2, J975,
·D 1is.in •tact 1the -pre&ent sub-5ectiqn. f IA);' for:< as 1stated earlier', the original
sub-section- (I)' was amended and renumbe~ed.. as. sub,section. ( l:A) ,,when
the present·sub·section (I) was inserted by the Companies·(Amendment)
Act, 1988 w.e:f. 15:6!1988. Consequently, the words 'the.time·specifiedin . _._
·sub-section (I )'-·appearing- in sub'sectlon {5): as ;1iS'erted wceJ;nl.2,~97.5,
denote the -period of I 0 weeks mentioned 1in 'the present ·sub-section'(1. A).
E This· means- that ·the •pennission for: listing' is•deemed no\ <to1hlive1been
·granted, <i.e.',. impliedly refused;':if' the·o11pplication for pemlission ·filed1 by
tile company has not bee1rdisposed of.before the e~piry:of:IO weeks1from
the date of•the closing of the· subscription lists, as· mentioned· unde~ .sub-
~ction (IA).
""; ... : ·\ ;i .:n•,;1,,- .,
'F Sub-section (IA) postulates that any allotment made becomes void
-at the· end oHO weeks from the •date of the closing of the· subscription lists
·if.by that tllne tlie requisite· permission of•the stock exdiange·has not been
·Obtained-) But this ·consequence•.is.pbstjlo'ned tilHhe dismissal of any ap-
peal--preferred ·under• section ;!22 lof:tbe ·SecUritiesl<!ontracts '(Regulation)
. Act,iJ956 (S<\ii'the provis<i'tO'sab-section {IA) rot.section 131 of the Act).
!.(J NevertheJtjgs; the- pennission, if.not'obtained.-wi(hin rlO,.weeks, is deemed
not to have been g;ranted. ;. -,,
1
ihe !>liniilssioii rdr Ustin~ sou!!bl'i1hder suO-sectfon'( IfiS-.iot granted,
" ' ''if
. tile interest'JSarable'lirlli~r'sub-seCiiOn' (2fis :aifracied. 'Siiblsec'tion1t2)''saYs
'H ,that th~ :lialiiliiY'to'repay' the ·money recelvt~. rrom apjillcants arises'fb1'i11-
Witli either' wliere the 'i)ermissiOI\ i haf not 'bl\en oougl\¥ br;. biivilig' lie'en . ....,- 4
-
.'·:.);.: 1 RAYMOND-SYJllTHETl(:S
• j ' ! .·!·-'. !/l .. , ,_;!.'
· '":~:!_
U.0.1. [THOMMEN, J.]
..'.'. :. 1<
1
! 505
.·
·'S</.ugl!t:; 1 it,1h~s 1 ngt be~n 1 gr~n.te.~;J,h,e .f,~ft~!~HW :~~~~I;.\~ 11endil)g_ ~<!es ,A
,. not pqstpon.e t,1\e, resq!t,s9,nte_r1wl_ate.d,.\9; ,~ub.-~~~t\?,? 1(.'.f), •r.r~gru,:d .t<,' the ·
- ,liability, t9»,r~p;1y1 t~·e, aji19un_ts, ~d, )hcj\1\er~-~t ac,~ming fhereo!). if ihe
ccamoµnts we !Wt ~eP.aid ;\".ith,i11 ~.da¥s a~~r We,!i!!!?i,l,ity ar,q~· }lle acciljal
-,:ofri.n.!erest,µ114.er,~ub;~.Ct.!pn 1f~), i,s,.l)qt c!Fpend.e!J), or ;9<J~seguen_t ,?~ !he
r•:.n!l_llj~y,pqs!11l;i,t~~:Y.. ~qb;;~ct.iO? 1(\A,)1 : ,,, .::c.:. """ , : hoh. ''"' 1 ,, , ,., ,!'·
rJl)i?'.:';'!' ii;;:~ ~;;!·,i ),_, f,I! _;'J'··l;p'l';i '.:, ·\[-)'
In this connection. reference may be made to· sub-sectfo1i (3) which
1!:'ffadSi.l·j'.J,1~Ti;-~1):; 'jj 0 1 ';·''.,;::.'ii:. d>.·irl fo:;ir; .,,1) iG '.ff.'",! t. v r<-·_,;:-t, ~"'.
-'.:_1.'A':·!. ·_ ,r:·: t·J:.1_;_nq :;i :l~·-·-i;:!i ··; •;! ~!::.._J·:/ :s-'rft ;.:1·;-.._·~i:,~~·:r; .·\·: l1_,q ·"·1!1;11 ' !:
,,.; f rfl,:l; ·r~'S'•7'3(3}0<All '.llioneys1 recei.ved: as:a:for~said,shall ~e. ke11!A1 a
rrJ. el;u-,i!qq;;separate hank1a~count maintajned;.witlr;;-i Schequl~d; b;u!k .u.n.til
,.-;1 ;1idir-1: m tnecpe·rmission:-has.cbeeo ,grante.d, -o~;\\lh.ere .a.n app,~_a\ch~~_,been . 1C
•1i i>snoiH•c. npi:efer;redragain~t-thiuefusal t_o;grantsucl1;pe,rni,i,s~i_o!);, until _the '
ot b .•l mr.i:i!!.disposall oLth! ·appeal,.,and: the' money-.s_\an<l,ing, i)l su9h, sepa-
;wm .,,;, '''" •rate acciiunt1shall ,l where the ;permissi()n has -npr,,l,>e~rr apn!iecl
for as aforesaid or has not hee_mg1;a111et/,_,ge: :rep~iJI. wifhi(l._the
time and in the 111a1111er specf{ied in s11h-section (2), and if
''""' · "''' e.,,., 'de'taiilhs 'ina'de'.in"c6mply'ing''witl1!this,sitb,section';•the com- ( p
c· · "~" '' .:•r.J• pariy~ana'ever'y bfficef-of·thecompany who •is:in:default. :Shall -
be punishable ivith .fine which/nlay:--:extencf ltb \ft Ve: lhous311d
rupees."
. . . (emphasis supplied)
;.-!t•rd ~1L,ii~::t~i~ ·3f[! .Jo ·1ibci"1:~ ·:.fil 1_,r ~. ;dhn:;:<; · 2. I' ::tnil..J ,'r.J ,; ~·. ;;·-
''" i 00 ;ff!)is,su~,~eq\i~n ref~rs,1g,~he,?,b!ig~t.iop ,of.t~~t~S~P~Y to keep all , E
amounJ~ . r:e.c~i y~.~·-tf~n? :~~-~ ,~_1:11'!~~r~P.r~~j; i9 .a, 1~7_p~r.~~,~ 1~,?nfi, ·*ccount main-
tained with a Scheduled bank. Such money must so remain in the bank
'' 'oritilctbe' :permission- has '.btie1i; gran1edcby.-. the: s10,k; i:xcl)ange. or, µntil the
-' disposal cbf ;an ;app~al.preferted1 agalos\.;refusal, t~. (!rant' permission. ,W,here
the permission bas not been sotight,•.theicompany ·has, as,seen.a.l:Jove •.~cted
in disobedience of the law. and the at110lll1.fS received from tlie investors . , F
' 0 triu$ille''ffediteif'fo·lheiseplir~tJloaiik'~ccdilnf·atld immediately returned to .
"' 1lliem' !Ol,ieihe'r\.vi'tti'"-t~e'' iiitfaest;·ivmcli' adrue'd •for the· peridd. •Bun wliere
"rll><\fin\iisiiiii! 'liaS! figM·~bl:1~1ht ,'out '11'ot 1l\'rantiid;1 thi· runounts"so kepi: ·;n1 the
''' blilik"iiav~·: fo'hil 0rMjiaill. witl?iri' the' fiiile'spetifiell •i"n s11b-sefoo1ir(2):1IDe-
fau1t of compliance with this requiremenl":Will lriake·rttte ·company;:and
.. everypfficer in defilult (as defined under section 5) liable to be punished;, G
~ ~itl1 ·r.~~~-~:·rh'ts~ ~~ 11; 6f'":c_6tif~e;l~- iA-·t.dd~\16nr_tO :·t11e:·11abt1tty f6tipay1nent · ~
1 1 1
~~ :0.f'.~µ~e~~f ~µ :tefriJ~ bJ\,~t.ti~~~ctig~ 1(.2).11 ~'.~ J"·'· ·:.:,: .1:. 1 :_~~~·\;,j·;··(; ·- ;·:'; ',~ :,,.~
1
:c.',.~:·~.·~'.'.:'.1:._.,. ·.'·'..1. -...[ ;_;f'i"' ··~·~ .:i:'.~1._···: . •:,-..... !tf'l J • •·ir:l ;:, '. ·n ·;r...:Ji'l!Offl'/.j ~i';..lf'l.lc::!
·".1 1 ·.'. "-Th~ Wgtji'i>? i:iil1\gaill>ll''of''tlie tdtli~ilry"t/i'ke~~'t'lie'ill'Bn'ey in !he
~ : ~ i~~'bniy·1 rJ'i tit~·· pen& 'P&ted1ii!!1;iite<dec·:iti6ii' 10l tW~ 11stbEk ~xt~ru1ge
on the company's request for permission to list. On~~n\ile"petinissiOJi is i ; H
506 SUPREME COURT REPORTS (1992] I S.C.R.
A expressly or impliedly refused, the money has to be returned to the appli·
cants, notwithstanding the penden_cy of the company's appeal. The earlier
part of the sub-section about depositing the money in the b_ank is control-
led by the latter provision in the sub-section for returns of the money as
required by sub-section (2). This is particularly so by reason of the penalty
-
specially provided in sub-section (3) in the event of default of compliance
B with the requirement of that sub-section.
Sub-section (3) may at the first blush appear to be contradictory, but
itis really not so, considering the legislative intent to protect the legiti-
mate claim of the applicants for interest on the money paid by them. The
interest provided under sub-section (2) is payable to the applicants in
c terms of that sub-section, unless the money is returned to them within the
specified time, notwithstanding the pendency of an appeal mentioned in
the proviso to sub-section (IA). Sub-section 13) has to be so understood to
be in harmony with the other provisions of section 73. This is all the more
explicit from sub-section (3A).
Sub-section (3A) says that the company shall not utilise the amounts
D held in the separate bank account for any purpose other than what is
permitted by sub-section (3A).
Sub-section (3A) provides:-
"S.73(3A). Moneys standing to the credit of the separate bank
E account referred to in sub-section (3) shall not be utilised for
any purpose other than the following purposes, namely:-
(a) adjustment against allotment of shares, where the shares have
been permitted to be dealt in on the stock exchange or each stock ex-
change specified in the prospectus; or
F
(b) repayment of moneys received from applicants in pursuance of
the prospectus, where shares have not been permitted to be dealt in on the
stock exchange or each stock ex.change specified in the prospectus, as the
case may be, or, where the company is for any other reason unable to
make the allotment of share".
G The money credited to the separate bank account can be utilised for
only two purposes: (I) for adjustment against allotment of shares where
listing is permitted; or (2) for repayment where listing is not permitted or
the company is otherwise unable to allot shares. The company has no right
to deal with the money in any other manner or keep it longer than permit-
ted by the section.
H
RAYMOND SYNTHETICS v. U.O.L [THOMMEN, i.] 507
The money so kept in the separate bank ·account is held by the A
company for and on behalfofthe subscribers in a fiduciary capacity. Such
amounts do not fomi part of the general assets of the company. The
.( relationship between the applicants and the company in respect of the
application money so held in accordance with sub-section (3) is that of
'bailors and bailee and not of creditors and debtor'. See Palmer's Com-
pany Law, 24th ed. para 24.31; 1955 (I) WLR 1080, 1085. B
Interest does not begin to run under sub-section (2) until 8 days have
elapsed from the date of expiry of the period of I 0 weeks commencing on
the date of closure of the subscription lists. The fact that the legislature
--( has so provided in cases where pemiission has been refused expressly or .
by reason of the deeming provision is sufficient indication of the legisla- C
tive intent to give the company reasonable time to repay the money.
Companies generally make allotments as soon as practicable after
the necessary application has been made to the recognised stock exchange
for pemiission for listing. Upon the issue of the prospectus afte" making
such application, amounts are received from the public in consideration of D
which allotments are made in anticipation of the requisite pemiission.
Greater the reputation of the company, larger are the amounts likely to be
received. If pemiission is not granted, the entire amounts received from
the public have to be forthwith repaid. On the other hand, if pemiission is
·,
obtained, but the amounts received from the public are in excess of the
aggregate of the application money relating to the allotted shares ,or de- E
bentures, such excess amounts are forthwith repayable. Whether or not
pennission will be obtained cannot be ascertained until the period pre-
scribed for the purpose has expired, namely. 10 weeks from the date of
closing of the subscription lists. Until the expiry of those I 0 weeks, nei-
ther the subscribing public nor the company will be in a position to decide
whether or not the allotments made are valid. This is a period of uncer, F
tainty and it is for that reason that tlie legislature has, in a case of refusal
to grant pemiission, provided that the liability to repay the application
money arises upon the expiry of IO weeks. The possibility of an appeal
being allowed is, as stated above, not a ground to delay repayment. It
should make no difference whether it is as a result of the pennission
having been refused, or pennission having been granted and excess amounts G
are received by reason of over-subscription, that repayment of money has
to be made by the company, In either event, the liability to repay the
amounts arises forthwith on the expiry of I 0 weeks from the date of
closure of the subscription lists. and the interest will begin to accrue
thereon on the expiry of 8 days therefrom. This construction is, in our
view, just and reasonable from the point of view of both the investor and H
'·508 1 1 'i .. ' , ; Sl!PJt.EME ,COl.JRT,REPORTS. . ,[1992] I S.C.R.
1.A . .the,cqmpany, ,and has ~he, advantage l•lqf cef'\a\nty,
' .. - '' ... · d·' ,._.,.
• .:
i •"
Ul\iformity
: '·.-
.•.
.and easy
:' ' ' -
n·RPPHG~~io~·-1 -. '!, ·.. -i·•r ., 111 _ . .: j ,:-. ~ ·,.,
. I -· 1'Jt , ·~' "i ·• •; l ' • J _. i i "! " J' ! ·~ . .-._ "'i I. .'I 'i :i :. · . . . ·.
·. "" The. coqditJon attach_ed t\) the,,p~de~.,oft~e Gov.emment of,lndia t
·, dated.31st
.... - '
·,May,.
_,
1.990,.- which
·'-
we .have. extracted
...·, ''·· .· '"" •- ab(lve,
time, limit of IQ we~ks-from .lhe date..0f,closure o.f t.h.e.subs9npt1on
, _ _ _ ·, '
indicates
- ... ;
t!iat the
hsts
... :".~:
i'B applied to r~f!i~~ or~eis'~, ~ei1;~s io allotme1it.of a1l sec,uri\ie~ and
1
despatch of allotment letters/certificates. The Government of India thus
·.· .~11der,stppq;tj1at t11e 1li,abil\ty19f th~,E?mpai1y. to repay the amoµnts in terms
0 • o~ $e~tipp,73 arqi;e pnly at thr, ~~d ,of I 0 ~~-~ks fro'!] the .\1flte of clo~~re of
. , t,11~ s~~scriptign, \is,\s .. ]his 8!?D~i.tio'\ ,Pfe§9m~~ly, appl\es, t.o re.pay~-~nt
K•"ll~~(~pl?:~ect~on,(~)._\IS w~u.~~. Ul!de_r ~u.b~5ectio'\(41) ofs~Gti9n 1}. fi1is
· ·1
C ,.is,Jully,·borne
' ·- '·:i ' · · ·· - '
outby
· .. "
the'· avemtents
'· · - '.' . '
contaiiled
. 1C:•
in the
. "·
affidavit
, · • . · i(, , "r _
filed 'ii\.-t:the
High Coµrt 011 beb;ilf oft.he U~ion of India as well as by. the oral. submis-
sions ;;n its b~half before 'tlie High Court on the point. Similar appe'ars' to
, )?e the, stand, ,qr. \he B<)11J\>ay, ,~to.~~: Exghan~e., ~~. seen .fr<:>!r. iis p~blication
. 1of; Mru:cJ1 l?c9,l..(P\ll'a 2~ .2). Tp,;_le,tte~, dated ..1';f~~ch;12 1 ,199 i ~.nt .b~ 1 the
,,.s.!!:~uri1ie~, a"!I Exdiang~, BR_~rd ,of, hJ~i~'. t)1~. 211<\ ~e~JJ?nd~W: t~: th~ .aP,pe 1-
G D 1)M!l£Ol1l!l\lf.IX. st_at~ig, \~l\tr!l\t~~\l5' w~ paya,ble. fr9~,J~',/"<?,v.~',"~r, 1~90,
'H'Y.!l•~!1 1s, th~ <j~t~ of,~~P•l')'._.\lfi:the,; p~n~d of I0 wee~s. f~oi,n !lie d~te. of
";c!9sur~!qftl\r.~P~sc.rpt11>n,1,~1s, ro~g\11~ 1nd•.9?\r,s h~~ ,\he 2nd}t;spol\~ent
' '.construed
··•-" ·· '•·'' t
.the .provision
' •·
shortly.' .before
'"' ·
.the proceedings
: i ,; _;,_., l'
-_i : -
commenced ,Y·J
'v'-.,, '' . i ··
ln the ·'J.
. - H~gh:~RYrf:): :;d!i-:' :(.t, c,,;1 •.i) 'j1","1 :1 J( ;1. ; ,-,r :Ji;;d -.. ~1.1~,(-l ':iL
''•j!
; dt''·_; ;~.::;-J."~ f' f11 :.: __i!l~i .:f[I .'_.it b';·i·; . . . . •·,p\·1"1' 0 .j·1 '• 1« t''.:>!-'1d·.
::: E -·;I~ -1(, ~~Th.e;_~y};J~J?t};,~s J~9t(.fr~~ .fr.?.~~ ,~~.~~gu_iti~.~-.-~1~? ipo~~t~. :H1iV,i_1i~,J~en
'<) am~n~~<!'. inf,sev,~~~1,,r~s11e.c!~,}.'•.lws- ~~1,n,11.~1.1r.; e1~7.~~~d·l~it.h.Jh~ ~'a~ty
. t,~al)!d0jltS,;9f; erutY. C\J!JS1ruct1on., ~~\,,the ~'/!11~mporan1~?US ,c9nstr~Cl!On
l PJ11q~d,,upo,11 mi a,mb,;gu(\US s~cl!::w by I~~ ad111ip1,strNor,s entruste? WJ,t~ the
-. ,,la~~ <>f e1<e.qutiryg !'W. stlf!~!~, i~, ex1r~ll}ely; sigi1jfif~n( ·r,!1is ~01~srr.\i,c,ti~ri, is,
":,•9 ,.p1rr1vie:t"'Prrf~pt_Iy, Cf1i1s1~f~!1[,,w1th J\ie ,1,~ng.u~~~ qr4, t~e ,'/~Ject of the
'I F .,.$1!!1,u\e,. M)s,~ praptiG~I- mi~ rea~1ia~~~ ..con~tl}lft!?"· .P.a?,1cul~ly q~9,~use
11)!1a,.ff?~d~- tl'.e 17?.l"Pa!tY, \~~S<?.'l~~,1)'..,su ~liRi~111 ~u~eJJ~?. Cf!~P!e/,e ,H1e fo~\11 i-
. , 10 l!e§ J1Jf1 ,de_~P,/ltCl\,qf t,~e rttfµnd, ord,rf~·i;/}/1dJ~t!J\Y,eS1?~.':\'~'/, h~s ;~fSJll'~~ed
,,,J?rM1~J,n~it~t.ip~, ~R"t~i~e~ i9 }\1e,p~9sp~pl~~ ·l~ ,~o,t, ,m~?plY ~ept.,w~t'im~, ,for
. , 1 t1w .rn\u,~p, ot;:)he. e~ce,s~ ,i\111011,pts due,\? ~!m;, ~ee Desli, 1'andlm/•!IJll.'f< &
-
, .,Co...& {Jrs,,,v,, Delhi.Stock E~clumge,;lssr,ciatio11L/d., [1979) 4 SCC 565
i >G :'.,;ali~;:f<,..f!..:vq1;iiJre;/_~,. Jn(oi~w· t'rµ. ,O.tJi~er. ,~~!alfAfa11~ ·~'A~/'..: '[i98lj 4
.,,,~\~ul?J,Se,~ aJso.Cr~-'f11rd,'.s i!1,1,~rpr!{tii(fon '!(IA'!'~: J989,~~·. ··.· ' ', :
·_;·ii '1!'(~_,,J (;' ni'irq:;I ·rP .ill ..i".''· ·,~.1;·1··· q[ .':"f!E''.r"tl;" ,+!.,I c.,'~·".'H ·, . . • t
'" ,id l'!eit~er_,\he,~~t~ ~f:al\c;>tme~!·.~:fou~.d,l!y..,W~ 1iJi~h,,Co~, ~()f,"lhe.
""!I.at.~ ~pe~i~~~ in,tlte prosp,ectu~. ru,;,contende~ ~~' th~;~ll)!lilnri is,,r~I.~,vant
, H 11 .io,,the ,c~ml11~•,1s~mrn_~ ,o,f li:ibility,,f?r.~axme?.t o,~ 1 ir1~ri:~. o~. t,h,~. ex,\7ss
1! bri~pney'.'ci :11it fi;,_·.,i ·t·· .. - .. ·lo i•ti•.'·-l ,nt· n,,,.: ; 1 d;if!t1-~1;:J?" hflr. ·<1.H ...... ,.J · .....__---
Cl ;~ I !·'"" r ! RA YMONIJJSYN)fHFJTIC;S "'·,ll;Qij: fMOHAN, J.]
·,s11orn 1'heoli;ibilityl1lf:a;,comP,any,10,fuepay'.lthe1e~Qess. m!ine;i1rµnder 'section AA .
. c:73(ZAJ o_f1th~'<Act aiises!'on ct~e.iexp!ry ofdl Q,,we¢k~xfrom tlie date of the
~ lllosing·io'f 1tHe ·subscripti@til tis ts; <and•itheJ illtete~t·1~egins,t<'liMcrue thereon
· ·,it lhetend:of 8idays1therefrorri1. 'ftqm 01. •;irj,-,f! .,_;:1;w;"'' br";
tflrh,ri'.1 '31(t in "~1iqx·." ~;dt rno1l rrn1nni, l':HJ tti<:;·J 1•;q· '.:!'..11! ·'lo S11;1
Accordingly the liability to repay the excess money,j_n the present
case arose on pLl99Q which \"as admittedly the date of expiry of JO nB
1 1
'' WJ~~~ ?frp~rlii~· ~at1~dfjf iii~ Gfb~th{i~ d? 1 fh~i~Jbi~~i;/Jiftlrt "(i·St~. and conse-
'i. 'q~efitl y" il1e "Ha~il'il/ i8 °~~y" 'if, 1~Veli' 1/{' ifig"i'ai~ 11sp'~c ifi~il "lh sub-section
(2A) arose on the expiry'Jf'S'ciUyk'hb'i\\"l'.'IT:i'99b'.JJ,l,ciuoilfo
-BqfJ? fi ni Hl':l.)j '.:KLllr;rl~ ~}ir::,:•J1(l1!, ?.G b~rii'.")51 :'.'{5fl•):·n l!f\ (fj
'W•i iieMOHJ\N;,,fol!:liM: tlie oady_antage:;of peru.si11g!l!ile1drnf! judgment of
·'iny 'leamedibr:c;>ther.rf concur wilh)himuBo\\'.e~~r,"s9me1,<mportant points ')C
-<:i:equir!e toibe:!lril!ilified; mhe'cp0ints thaliat1ises,for ,deJeriminaii.on are:
z! orh:rxnr:qffrt..rJ ~,;il1o 1~~:Jit.to v:1~·1"J biu; .v~iH?.qffK;0 '.:lilt ,rirJit?!.12
o! bt<'.(i~o •!he1 srope·1oti·1Jiability,1!Jildllt1:Se~ti911 !;7ih (U.~10£, the Compa!lies
Act. .r'."J:Jq_1r1 hr~_1)(:L'C1f.!i ~i'l it
,.,,
1
M . f h d "' -• 't'"
J~u:;1ilq~ ~ v-,~~1PJ-P ! .~1~Hr ,;t t.0 ~i'tf<°'Xf ,f!~r no~i~hno:i--\'. ;1/\ 1~ ). · (JD
•,rfJ 1o(iji1}: Whethe£1ttte]payment,.:of interesti~..peilabin,natUreZit
(iv) Whether adiiliriisttrttlVe'ih'C~i\Veili~lice cCiuldlitH(ileaded to avoid
t:;d~ b~in-r:;·Jtl 1 ~t~t~t.~tRf;Yi~,i~9iJ.ii~YX1:.i" ~ 1ril ·10 'J~c,q1uq -,fff ·io·--t {~.,i
:>rH 1r.1!St!ctioo111'31 ooclirs:iunder.,Pa!ilrlilrP~1Jhez~mp@ies,J\ft 1956 (Cen-
li•rallAot110{ 1/.1:9561 hereinal'!~r1referreitto ins, the Act);:)lil)l&;section deals
with the allotment of shares andidebenturesdtthas;.und~rgone important JE
amedndmendts in 1975 and l~8~ft!;'~j~Ln!~ne,\~~m.;~t,mr1~715' Section 73
rea as un er :- . · · , ·
rc!;i1;r '.Jd UI b'.i~:n:,ri: .,;s;1u1i;~d·;b 10 i.'nhf!2 '{flH ot :1oi11;f~/1 ni if;)
.wiooqw10, n '(Mllotmeht1e~,shareprandrdebentur.esJ<!o; fie; dealt in on stock
-<JC•q<mq odt ·exchangeH:(d }.W.hereoaip.l<'l&JlC;Glµ~c.:-Vhethei 1 jssued generally or
. not states ihat application has been Of;iWJl.J.l;ie made for permis- ''I F
. .sion f<;>r the shares or debentures offered therebx to be dealt in
dJiw ·" n" "'b1i"r't~cb''\l;;J~ 's¥6tl<'lt'lt"h1fo"b."~h19, 1 fihSimtlli made on an
1
. applica110'1flli'Bilr&UflN61?lllifler'Ja~~i,'i&~ sli~n. whenever made,
-In ot 'Jow•1eihe i.<ohl!iif~e :pelibiSliiohd1aJ! 1lol1:l>~ll1a1N1lied for before the
tenth day after the first issue of the,:p.tOS.P!J~tus or, if the per-
r,iission has not been 1;1ranteit before the expiry of (four weeks) DG
11
"' ){Jll "" ·~'Wb1ifiJ& 18 iii~ £'/mYi%alir i"df'f;kfi\ii~Jldil'by or on behalf' of.
0 1
'(£;Q~.n ot CS} lh:rJll'J.5~-··Ju;;: 1.Db11u ~Jdnu -:id !i1ai(. _\'n_r.~11no:1
· · . ·. e stocli excnange. . . ··
-f!lO) ~flt O) ".:i'..li"i~"i'31::n·f)tJ!: ·.2HIRJl!QQ8 ff10"n: b'.i'/f''.:l'):l'X 'l'J{l(lffi
b·,;r11wo·J od ~)1:Wberedhet1pennissidn1"1~:1ll<lt:been.capplied for as afore-
said, or has not been granted:!llScllfoi:esaiddhe company shall
· forthwith .repay without interest all moneys received from ap- , , H
'(lii>(fl!IO') ~Ill qt \i'.) HOl1:1:;1~-dJ1~ lH ::'J'.Jfi'.J"i<;it'.n 5r!J 1(ii (1l!j 1·,
•;.:v:;:r!; ,!hH;-l:Jb ni 2i or!v; '(nr.qrno::i t1rl: ·ti) l'.1-Jifto '(!~·.;~ hriB
510 SUPREME COURT REPORTS [1992) I S.C.R.
A plicants in pursuance of the prospectus, and, if any such money
is not repaid within eight days after the company becomes
liable to repay it, the directors of the company shall be jointly
and severally liable to repay that money with interest at the
rate of five per cent per annum from the expiry or the eighth
day:
B Provided that a director shall not be liable if he proves that the
default in the repay1nent of the money was not due to any
misconduct or negligence on his part.
(3) All moneys received as aforesaid shall be kept in a sepa-
rate bank account maintained with a Scheduled Bank so long
c as the company may become liable to repay it under sub-
section (2) ; and if default is made in complying with this sub-
section, the company, and every officer of the company who is
in default, shall be punishable with fine which may extend to
five thousand rupees.
(4) Any condition purporting to require or bind any applicant
D
for shares or debentures to waive compliance with any of the
requirements of this section shall be void.
(5) For the purpose of this section (it shall not be deemed that
pennission has not been granted) if it if intimated that the
application for pem1ission though not at present granted, will
E be given further consideration.
(6) This section shall have effect:
(al in relation to any shares or debentures agreed to be taken
by a person underwriting an offer thereof by a prospectus,
as if he had applied, therefor in pursuance of the prospec-
F tus; and
(b) in relation to a prospectus offering shares for sale. with
the following modifications namely -
(i) reference to sale shall be substituted reference to al-
lotment;
G
(ii) the persons by whom the offer is made, and not the
company, shall be liable under sub-section (2) to repay
money received from applicants, and reference to the com-
pany's liability under that sub-section shall be construed
accordingly; and
H (iii) for the reference in sub-section (3) to the company
and every officer of the company who is in default. there
RAYMOND SYNTHETICS '" U.0.1. [MOHAN, J.[ 511
shall be substituted a reference to any person by or through A
whom the offer is made and who is knowingly guilty of,
or wilfully authorises or permits, the default.
(7) No prospectus shall state that application has been made
for permission for the shares or debentures offered thereby to
be dealt in on any stock exchange, unless it is a recognised
B
stock exehange".
After amendment in 1975, Section 73 .read as follows:-
"Allotment of shares and debentures to be dealt in on stock
exchanges. (I) Where a prospectus whether issued generally or
not, ~tates that an application has been, or will be, made for c
permission for the shares or debentures offered thereby to be
dealt in on one or ntore recognised stock exchanges, such pro-
spectus Shall state the name or the stock exchange or, as the
case may be, each such stock· exchange. and any allotment
made on an application in pursuance of such prospectus shall,
whenever made. be void if the· pennission has not been applied D
for before the IOth day after the first issue of the prospectus,
or, whether such permission has been applied for before that
day, if the permission has not been granted by the stock ex"
change or each such stock exchange, as the case 1nay be, be-
fore the expiry of I 0 weeks from the date of the closing of the
subscription lists : E
Provided that where an appeal against the decision of any
recognised stock exchange refusing permission for the share or
debentures to be dealt in on that stock exchange has been
preferred under section 22 of the Securities Contracts (Regula-
tion) Act, 1956 (42 of 1956), such allotment shall not be void F
until the dismissal of the appeal.
(2) Where the pennission has not been applied for as afore-
said, substituted for "or has not been granted as aforesaid" by
the Companies (Amendment) Act, 1974. w.e.f. 1.2.1975 sub-
stituted for "five per cent" ibid.
G
(2A) Where pennission has been granted by the recognised
stock exchange or stock exchanges for dealing in any
shares or debentures in such stock exchange or each such
stock exchange and the moneys received from applicants
for shares or debentures are in excess of the aggregate· of
the applicant moneys relating to the shares of oebentures H
i ..1 '··"SUJ>ItEME'COURTREPORTs .. ;~n· {1992) I S.C.R.
A/. : : ;;.-, '1 ., · • in•respect·ofwhich•allotment•has,been,made, the com-
·,:. " . ·· "' · pany•shalLrepay•the:moneys.to•the,extent;of such excess
forthWithlwithciut1jnterest,1·and1ifsuch money is not re-
paid wit~in eight days, ,from the day the company be-
'fumes
liable ~o' pay'it; ihe'Diteciors Of the Company shall
"" .• be'johitly 'aiid severatiy1iat\1e· to repay'the' money with
i., ' ' , ' I lnleresfafihe rate ofh\ielve pef' cent i>er 1iiiilium from the
expiry of the said eighth day : · ' ,,,.! " ' .' '' ·
·· .· ':.r• .. 1: ! ;_,1 I' '· •i1 ''J;,.1 .1.,i'i ..i 1i1~1·H~'H',.:r:. ·1;.•1
Provided that a Director shall not be liable if he proves
,tl)at the ~efaultjn the payment of the. money was not due
.'·:' l•, ' ,, Oi ,,JJ :JI_< ; - .ll1I , ·,;
J if ... ·.'· ··· .•' ·" . 1{11·:• -, ,
··•1..: ., , !£,any tn.rssond~~t.~r ~~fl1gen~e;on 1 ~1s.P\1!1;r: ".
c · ' '"'' (2B) 'If· default is made ill· ccimplying .with th~. provisions of
"' ·' • .. ,. • sub-s'ection"{2A);'the· company:and. ewery officer of the
en !' .. : · "compan~·who iS''io•default•he·shall .be punishable with
. "· · .'"lin'e whiclrmay extemito fiwe thousand •rupees,:and where
""" repayment'is not .made Within six months from· the expiry
·"" · "· of:the·eighth day, also with.imprisonment.for'a.term which
;)_., ~q:;. - 1d ·may extend to-on~'yeat.1.1'.1· Jr! · .. ,.111 1··. ··~r·. ,,1
,,. «~ ·1 1 ···1: r -;.- .... t ·'..;:tc ·.f'. , · . t ·.·u,,·.,; ~!.f
,, ·'' c.:.J (3) Al\;mpn~ys_recei.vll.d.µ,5af9re~id,s,ha\l1Je"~ept \n a sepa-
,._. _ rate bll!ll\ acco[\ntll\aintain~drwjt~ a.~ch~dul,ed, J:lanlc,(until the
._ permi~sion -has beep gran!~d, .or where .Jlll,,apperu ,has been
, . ,,, preferrtld,against i\le Iefusal !\l,gfllnt,such permi5sio,n,, until the
disposal of the appeal, and. the money 5t!lllding i11,_such sepa-
rate account shall, where the permission has ·not been applied
. ,.,, ]n 'for·as 1afoiesaid or has not btien' granted; be'ripald\vithin the
'· ..... , tiine 'ail<f iri'tlte'imlihrier speCified' iti'su!JCsectl6ll'''(2); and i,f
""".. · " def~uil iinriatle iri foniply'illg 'with this liub-sectitln! the com-
'""· '·»1 · patiy,'and every officefdfthe company Who'is i1r'defau1t, shall
F '' "& puJiis\labl~' i.vlth 'tine"wh'ith 'niay extend tb 'fiVe thousand
1
'
·,,-_·-~ ;·,; ·., ,J. ;r {ir',~. '.H'f! ld!,I~
rupees.
-·fl1·11 ·1· "<,; b;il ,.1.r .. , -~ ,1·: .. ;;r! 'r'.,·i111· ·1 l-. ''tn! 1! .·· !
... .1. . (3 A,l lyfoneys ~tand_1ni; to .t~e credit ,of the 5epamte bank ac-
'· .• ;- . _ ,·; 1''..' . c?~nt_' ~~_fe.r.~e~;·~?. 'ih::~~~;,S~~~~91) "(~~. '.~~~} ~J.1ib!~1ie utilised
1
for any purpose ot~\'l; tlli)~.t\1~ ~~11.~i1rt~ r~~?.'l~i~· namely'.-
G
., :., ,, ·-~·:. :<pl ,ii A~~iu~~rry~~1t . :a~f!i:~;~t -~:1,~o!!~~~-1~.~ 1 ~f .~~1~~fJr~ 'fihe,!~- ~he shares
'.i-.:. -,: , (,;i,,. 1 i?a~.~ b.;~~~1iR~~!tt~.~-.~? ~~ Q;~~~ 1.?:·,?.n_!f~~;~tock exchange
,.:~, 1 ~ d •r.': ·... ),~fu~~~?h st,p)9~('.e~~!~~~e'.~~~P;~fi~~1 n~:~h.~ ·~~pspectus; or
» ""'"''"·(b)',,·Repayment•of.mone.yS' received• from applicants in pursu-
:" ' ; . : _.; ah'ce of·the prospectus,:wtiere· sbares:11ave not been per-
H" """<·;; •., .mitted to be• dealt.in:on.·the stoek exclmnge or each stock
"
RAYMOND s'YNTHETic~ ' ». u.th (MOHAN. 1. J
i exchange i Specified in the prpspectus, as'tbe case may be,
~,. l. ~ '
A'"
,.,,, ' "'or; where ihe·¢ompany is for other reasot\ unable to any
·: ;, ' make tbe ~llotniento'fshlite. '. ' ''" ': '" ' ' .r::.•i. '
. '1 ' ; i ; ·: · · 1-., '.i'. ·~ ; -· ; :, ; : j I : ::
(4) Any condition purporting to require or bind applicant for
shiires or debenture~: to'' waive· con'ipliance witli" any of the
requireJt!ents of the section'shall be void." •.. i'· ·
• , "1(, ' I rj<, , " ;, Ii ll \!: .t'! ';i~ . il
, ...(5) For the .:purpose,,of. this section, it ~hallr be ..de~med that
, . :,.. , pefl!lission ,has. not been giapteq ·if the, app\i_ca\ion}qr pennis-
, ..,,siop, w)wre.,n1a4e,,has. Qof;been iJt!P<l~d. oLwillJ.il! the time
" specifie,d in sub-section,(!), , . .;:. '· 1 . . ''"·'I'
) " "(6jThiS secfiiiit Shall Ji\iye ef(ec('c' i: ' 1 ' '.; I"/, J
;I · . '- .' ', i ! . · · i,..;: ';;j ·.I ; It ~J • '_:; • '' '.'.l> . !~I: (,, ·.. • :· CJ
(a) In relation. to aµy slJares or debenturn~ agre~4 t\) be taken
by a person underwriting an offer thereof by a prospectus,
, U.-
as
if 11e 'had applied therefor hi pursJimce; of tbe prospec- '
,, tu s/and; . 1 ·h<; ··. ·i 1"-; :,; 1 ... i . _. :,- · ,., ...:. 1•·.••
' ' .
. (b) ·In.relation to a·prospectus ..offering shaies for sale, with .,
D -·
~ : · i .:the following modifications, na,mely .- : . · , . ,
(i) References t~ Sale 'shaii' b~' substituted fotfeferences
·.. , .'. ··to·allptment; ·. · ,. •'"" :•L , ... ,, '·
' . ' .
'·p · .• , •, ·, ·.: ... r! .•. ~·:· " . .'1; ··•. :: ',,. .~-, ( l' iJ' .. ~·.··;..·
'' "
.;(ii) The
, < "•
persons
, , • , '. 11 , _ • . •· • ·
by whom
, '
the ..offer
- , ,, , ._,
is inade,.;md
' "p · , . I ,; -,.
not the < ••
. , . "· ,, co•npany, shaB .l:>e 1.i\d>le under suf>.:se.ction (2) to repay E'I
.'·!" ., .
' 'money received from appJiC;ln_ts, and refe~ences to the
! .. ', / ..• ' ... . '. , ., ·.• ·•· • '' ...... ·
i ., . , .compaf1y's.Jiab\lity,.HnderJhat. sµ!';S<(Sfi9n,, s.l/~P be con-
,,.. strued-·' . . ~·
ac'cordjngly;
. ' : • - '.
and. · .. .' ..; ' • . ;!. . "...
' - ' .' " " ' ( l
,. ' · (iii)Fiir ·the i'eferen~e 'in 'sub"csliction' (3)' to 'the' company
. ';, ·.. '' . and evet'fo'ffib'erofthb'compiliiy whOis in'Clefault, there
F
"' · · · "shall Be substituted a'niferenc£to 'any person by or through
•1 '·c~hom'the'offer•is'maile and who'i~ khowingry guilty of
" '" or·wilfully autliori'ses or permits: the' defmdt.I ' .,,
'(- f:l; ~ '.' ·;,-i :'i'..':''
(7) No prospectus shall state that application has been made
i. ·.II~'. ·for'pen\\isSiOh' for ihe Sh'arkor (lel)'eiifure~'o'ffered ·thereby 10
. ' '.' be''dealt Ii\' oli 'ai\y'Si0cli'ex'change 1,"unles~·it'is a recognised a·)
, ':i j.-i;·_.1·;sidCk·exc~·aritfe." . ·.·d , .1 ,1·., , i ·,i· :•1 :-_,·;, . ,., ·· .. 1·
ii .. ;':. :i -.'.' n- !i,f ,,,·: ,'11: r.i, i ii·.o,· __.·_; -. .. .-.·1;!l .. :~-~ ·•!11·
. '.. "'"', AAer ame11dment in l9.88,,$ec\iop 7,3,[eads,a~,µnd,e,r ;-
_,, ''" '· '· 1A1fotrirenr of shares ~nd·debennirek to'iie'deai(fn' on stock
, . '" exchailge. (I): Every 'cofr1pii11y;"ii1tdililh\g Id' Off.ii" shares or
Hfi
"' · d~be1\'tules· td th~ j)Jblic for'subscrlpti&n "liYthe' Issue of a
514 SUPREME COURT REPORTS [1992] I S.C.R.
A prospectus shall before such issue, make an application to one
or more recognised stock exchanges for permission for the
shares or debentures intending to be so offered to be dealt with
in the stock exchange or each such stock exchange.
(I A) Where a prospectus, whether is issued generally or not,
states that an application under sub-section (I) has been made
B for permission for the shares or debentures l>ffered th2reby to
be dealt in one or more recognised stock exchange, such pro- (;•
spectus shall' state the name of the stock exchange and any ~
allotment made on an application in pursuance of such pro-
spectus shall, whenever made, be void if the permission has
not been granted by the stock exchange or each such stock ~·
c exchange, as the case may be, before the expiry of ten weeks
from the date of the closing oflhe subscription lists:
Provided that where an appeal against the decision of any ,.
recognised stock exchange refusing permission for the shares
or debentures to be dealt in on that stock exchange has been
D preferred under section 22 of the Securities Contracts (Regula-
tions) Act, 1956 (42 of 1956), such allotment shall not be void
until the dismissal of the appeal.
(2) Where the permission has not been applied for under sub-
section (1) or, such permission having been applied for, has
not been granted as aforesaid, the company shall forthwith
E
repay without interest all moneys received from applicants in
pursuance of the prospectus, and, if any such money is not
repaid within eight days after the company becomes liable to
repay it, the company and every director of the company who
is an officer in default shall, on and from the expiry of the
eighth day, be jointly and severally liable to repay that money
F
with interest at such rate, not less than four percent and not
more than fifteen per cent. as may be prescribed, having re- .,.
gard to the length of the period of delay in making t.he repay-
ment of such n1oney.
(2A) Where permission bas been granted by the recognised
G stock exchange or stock exchanges for dealing in any shares or
debentures in such stock exchange or each such stock exchange
and the moneys received from applicants for shares or deben-
lures are in excess of the aggregate of the application moneys
relating to the shares or debentures in respect of which allot-
ments have been made, the company shall repay the moneys to
H the extent of such excess forthwith without interest, and if ,....-
RAYMOND SYNTHETICS v. U.O.l. [MOHAN,J.] 515
such money is not repaid within eight days, from the day the A
company becomes liable to pay it, the company and every
director of the company who is an officer in default shall, on
and from the expiry of the eighth day, be jointly and severally
liable to repay that money with interest at such rate, not less
than' four per cent and not more than fifteen per cent, as may
be prescribed, having regard to the. length of the period of B
delay in making the repayment of such money.
(2B) If default is made in complying with the provisions of
sub-section 2(A), the company and every officer of the com-
pany who is in default shall be punishable with fine which
may extend to five thousand rupees, and where repayment is
not made within six months from the expiry of the eighth day,
c
also with imprisonment for a term which may extend to one
year.
(3) All moneys received as. aforesaid shall be kept in a sepa-
rate bank account maintained ~ith a Scheduled Bank until the
permission has been granted. or where an appeal has been D
preferred against the refusal to grant such permission, until the
disposal of the appeal, and the money standing in such sepa-
rate account shall, where the pennission has not been applied
for as aforesaid or has not been -granted, be repaid within the
time and in the manner specified in sub-section (2) and if
default is made in complying with this sub-section, the com- E
pany and every officer of the company who is in default, shall
be punishable with fine which may extend to five thousand
rupees.
(3A) Moneys standing to the credit of the separate batik ac-
cowit referred to in sub-section (3) shall not be utilised for any
F
purpose other than the following purposes, namely :-
-: ~
(a) adjustment against allotment of shares. where the shares
have been permitted to be dealt in on the stock exchange
or each stock exchange specified in the prospectus ; or
(b) repayment of moneys received from applicants in pursu-
G
ance of the prospectus where shares have pot been per-
• mitted to be dealt in on the stock exchange or each stock
exchange specified in the prospectus, as the case may be,
or, where the company is for any other reason unable to
make the allotment or share.
- ...
(4) Any condition purporting to requjre or bind any applicant H
•
516 SIJl'REME COURT REP<lRTS 11992J I S.C.R.
A for shares or debentures to waive compliance with any of the
requirements of this se.ction shall be void.
(5) For the purposes ~f this section, it shall be deemed tl1at
permission has not been t,.'fanted if the application for permis-
sion, where made, has not been disposed of within the time
specified in sub-section (I).
B
(6) This section shall have effect -
(a) in relation to any shares or debentures agreed to be taken
by a person underwriting an offer thereof by a prospectus,
as if he had applied therefor in pursuance of the prospec-
c tus; and J
)
(b) in relation to a prospectus offering shares for sale, with
the following modifications. namely-
'
(i) reference to sale shall be substituted for references to
allotment;
D (ii) the persons by whom the offer is made, and not the
company, shall be liable under sub-section (2) to repay
money received from applicants, and references to the
company's liability under that sub-section shall be con-
strued accordingly ; and
(iii) for the reference in sub-section (3) to the company
E
and· every· officer of the company who is in default, there
shall be substituted a reference to any person by or through
whom the offer is made and who is knowingly guilty of.
or wilfully authorises or permits, the default.
(7) No prospectus shall state that application has been made
F for permission for the shares or debentures offered thereby to
be dealt in on any stock exchange, unless it is a recognised
f
stock exchange".
As the section reads now, every company is required while it offers
for public subscription issues of shares or debentures by means of a pro-
G spectus, to make an application for listing the security in one or more
recognised stock exchanges. Should the stock exchange not grant the per-
mission for listing, before the expiry of I0 weeks from the date of closing
the subscription lists, no allotment could be made. In other words, the
stock exchange has a say in the matter of listing. It also requires to be
stated that the company, besides the Director, is made liable for failure to
H repay the application money or the excess application money alongwith
interest.
•
RAYMOND SYNTHETICS v. U.0.1. [MOHAN, J.] 517
Notes on clauses read as under :- A
"Clause 10 provides for compulsory listing of all public issues
with recognised stock exchanges. Presently, listing of public
issues is not compulsory. Further, as per the existing provi-
sions only the directors are liable for failure to repay the appli-
cation money or the excess application money within the specified B
time, ifthe company fails to pay". "It is proposed to make the
company in addition to the directors who commit the default
liable to repay the application money or excess application
money alongwith interest at a rate between 4% to 15% de-
pending upon the period of delay with a view to ensuring that
ordinary directors like nominee of govt. financial institutions c
do not attract penal provisions, it is further proposed that only
the directors who is an officer in default should be liable for
prosecution".
As per provisions to sub-section (I), an appeal may be preferred
under section 22 of the Stock Securities Contracts (Regulations) Act,
1956. Such an appeal may be - D
(i) against the decision of stock exchange refusing permission ; and
(ii) if the stock exchange fails to dispose of the application for per-
mission within 10 weeks from the date of closing of the sub-
scription lists. Thi~ 10 weeks become. important because of the E
deemed rejection under sub-section (5).
Sub-section (IA) mentions the date of closing of the subscription
. lists. Thus, it. is a crucial date for determining the expiry of I 0 weeks for
the grrult of permission by stock exc_hange. Equally that becomes the
crucial date for calculating the time for preferring an appeal under section F
22 of the Securities Contract (Regulations) Act, 1956, as aforesaid against
the refusal of permission. No doubt, neither in this section nor elsewhere
it is stated as to when the company is required to close subscription lists.
Of course, that will depend upon the facts of each case. Section 69 of the
Act states that unless minimum subscription is received, no allotment
shall be made of any share capital of the company offered to the public G
for subscription. In fact, sub-section 5 of the said section 5 of the said
section states categorically as follows :-
"If the conditions aforesaid have not been complied with on
the expiry of one hundred and twenty days after the first issue
of the prospectus, all moneys received from applicants for
shares"shall be forthwith repaid to them without interest; and if H
518 SUPREME COURT REPORTS [1992) 1 S.C.R.
A any such money is not so repaid. within one hundred and thirty
days after the issue of the prospectus, the directors of the
company shall be jointly and severally liable to repay'\that
money with interest at the rate of six per cent per annum from
the expiry of the one hundred and thirtieth day:
·Provided that a director shall not be so liable if he proves that
B the default in the repayment of the money was not due to any
,/
misconduct or negligence on his part".
One thing that is striking as far as the sub-section is concerned is,
the repayment without interest before the expiry of 150 days after the first
issue of the prospectus and the repayment with interest within 130 days
C after the issue of the prospectus or specific in their terms unlike Section
73. It cannot be gain said that the prospectus of the company is an impor-
tant document provided for under the statute.
Sectiot> 2(36) defines "prospectus" as follows:-
D "prospectus" means any document described or issued as a
prospectus and includes any notice, circular, advertisement or
other document inviting deposits from the public or inviting
offers from the public for the subscription or purchases of any
shares in, or debentures of, a body corporate''.
Section 60 deals with registration of prospectus. Under sub-section
-
E
(3) it is provided that the Registrar shall not register a prospectus unless
the requirements of sections 55, 56, 57 and 58 and sub-sections (I) and (2)
have been complied with. Section 62 deals with civil liability for misstate-
ments in prospectus, while section 63 deals w.ith criminal liability for
misstatement in prospectus. In the background of the legal provisions
F section 73 will have to be analysed with regard to the liability to pay
interest.
The date of allotment, according to Mr. Andhyarujina and Mr. Cooper
is the relevant date. Therefore, according to the learned counsel, the cru-
cial issue is the allotment. It is also submitted that when permission is
G granted, it is only a categorisation. It.has already been seen that' under
section 69(5 ), specific dates have been mentioned as I 20 and 130 respec-
tively. Sub-section 2(A) of Section 73 does not mention any specific day.
It also requires to be noticed under sub-section l{A) of this very section
"I 0 weeks from the date of closing of the subscription lists" is mentioped.
Both under sub-section (2) and 2(AL no such time has been prescribed.
H Prior to 1988, sub-section (I) contemplated two situations - (i) application
to stock exchange being made aftM issl1e within 10 days of issue or (ii)
RAYMOND SYNTHETICS '" \J.0.1. [MOHAN, l.] 519
application made before the issue and I 0 weeks for stock exchange to A
grant the application. Of course, if the application is not granted within I0
weeks, there will be deemed rejection under sub-section (5). But, unfortu-
nately, after the admendment of sub-section (I) and l(A), sub-section (2)
has not been amended with reference to these amended provisions. As the
law stands at present, the que~tion of issue of prospectus without an
application to stock exchange cannot arise at all. B
As careful re~ding of sub-section 2(A) will clearly disclose that the
said section comes into operation only where pennission has been granted
by the recognised stock exchange or exchanges. These words "where per-
mission has been granted" are of great significance. Therefore, the con-
tention that on the date of allotment the liability to pay interest arises may C
not be correct. Nor again, it would be correct to contend that the mechan-
ics of refund liability to pay arises on the date of allotment since there is a
failure of consideration in respect of shares not allotted.
On allotment, the money may become due. Thereafter the money is
held in a fiduciary capacity. But the more important question is does it D
become payable? We will, now, refer to Black's Legal !Jictinna1)• as to
the meaning of the word "due" and "payable" (5th Ed. 448) are as under:-
11
Due" - Just; proper; regular; lawful; sufficient; reasonable, as
in the phrases "due care", "due process of owing; payable;
justly owed. That which one contracts to pay or perform to E
another; that which law or justice requires to be paid or done.
Owed, or owing, as distinguished from payable. A debt is
often said to be due from a person where he is the party owing
it, or primarily bound to pay, whether the time for payment
has or has not primarily bound to pay, whether the time for
payment has or has not arrived. The same thing is true of the F
phrase "due and owing". Payable. A bill or note is com-
monly said to be due when the time for payment of it has
arrived. The word "due" always imports a fixed and settled
obligaiion or liabiliiy, but with reference to the time for its
payment there is considerable ambiguity in the use of the term,
the precise signification being detennined in each case from G
the context. It may mean that the debt or claim in question is
now (presently or immediately) matured and enforceable, or
that it 1natur~d at so111e titne in the past and yefre1nains unsrit-
isfied, or that· it is fixed and certain but the day appointed for
its payinent has not yet arrived. But co1111nonly. and _in the
absence of any qualifying expressions. the word "due" is re- H
520 SUPREME COURT REPORTS [1992J I S.C.R.
A siricted to the first of these meanings, the second being ex-
pressed by the term "overdue" and the third by the word "pay-
able".
"Payable" -Capable of being paid; suitable to be paid; admit-
ting or demanding payment; justly due legally enforceable. A
sum of money is said to be payable when a person is under an
B ·obligation to pay it. Payable may therefore signify an obliga-
tion to pay at a future time, but, when used without qualifica-
tion, term normally means that the debt is payable at once; as
•
opposed to "owing".
As a matter of fact, these words assumed great significance under
c section. 60 of T·ansfer of Property Act. The section was amended by Act
20 of 1929. The word "due" in the section has been substituted for the
word "payable" in order to make it clear that a mortgagor cannot redeem
within the term of the mortgage". "When the right of redemption arises -
the right of redemption arises when the principal money secured by the
mortgage has become due and may be exercised at any time thereafter,
D subject of course to the law of limitation. In English law, the mortgagor
cannot redeem before the time fixed for payment. Nevertheless there were
a considerable number of Indian cases in which it was held that the time
fixed in the deed was fixed for the convenience of the. mortgagor and that
he could redeem before that time unless there was an express stipulation
to the coetrary. These cases are bad law, for the view taken in other cases
E that the mortgagor canno.t redeem before the time fixed for payment is
confirmed by the decision of the Judicial Committee in Bhaktawar Begam
v. Husaini Klwnam, (1914] 36 All. 195. 41 I.A. 84, 23 J.C. 355 followed
in Bir Mohammad v. Nagoor, (1914] 27 Mad. L.J. 483, 25 I.C. 576 which
treats Rose A11111w/ v. Rajarathnam, (1900] 23 Mad. 23 as overruled".
F In 1976 (46) Company Cases 25 in Baroda Board & Paper Mills
ltd. v. Income-Tax qfjicer. Circle I. Warde-E. Ahmedahad and others. it
is held as under:- .,.
"Mr. A.L. Shah who appears for the liquidator in 0.J. Appeal
No. 2 of 1975 has urged before us that the legislature has used
G in the context of the prior"y of debts two distinct sets of words
"debt due" and "due and payable" and proper meaning should
be given to these sets of words, namely, "debt due" and "due
and payable" and distinction must be made when the legisla-.
ture has used two different tenninologies, namely, "due" in the
beginning of the clause and "due and payable" at the end of
H the clause. He also wants us to dissect the phrase "due and
RAYMOND SYNTHETICS v. U.0.l. {MOHAN, J.J 521
payable" and he wants to emphasize that the debt must have A
become due in the narrower sense of the word of having come
into existence aild having been payable with reference to en-
forceability of payment and, in this sense, relying upon the
decision of D.A. Desai J., he has urged before us that the debt
must be existing at the relevant date and the event which
brought the debt into existence must have occurred within the B
twelve months preceding the relevant date and it must also
have become payable, meaning thereby that its payment could
have been enforced against the company, within the twelve
months before the relevant date. In view of the decisions that
'
we have already referred to, particularly the passage from Peo-
ple v. Arguello as approved by the Supreme Court in Kesol'am C
Industries' case and in Raman Iron Fo11nd1y's case, it is not
possible for us to accept this contention of Mr. Shah. In our
opinion, tbe only meaning that could be attached to the word
"due" occurring in section 530 is that it must be presently due
and the words "due and payable" mean the same thing, namely.
that it must be prese11tly payable. Therefore, so far as section D
530(1) (a) is concerned, the revenue, tax, cess or rate, due
from the company to the Central or State Government or to a
local authority must be presently payable, that is, that the li-
ability could be enforced as at the relevant date and, secondly,
it must have so become presently payable within the twelve
months immediately preceding the relevant date". E
In this connection we may refer to the case in Union of India v. Air
Foam Ind11stl'ies (P) Ltd.. A.l.R. 1974 S.C. 1265 & 1271 (para 7), which
reads as follows :· ·
"The first thing that strikes one on looking at Clause I 8 is its F
heading which reads; "Recovery of Sums Due". It is true that a
heading cannot control the interpretation of a clause if its meaning
is otherwise plain and unambiguous, but it can certainly be
referred to as indicating the general drift of the clause and
affording a key to a better understanding of its meaning. The
heading of Clause 18 clearly suggests that this clause is in- G
tended to deal with the subject of recovery of sums due. Now a
sum would be due to the purchaser when there is an existing
obligation to pay it in praesenti. It would be profitable in this
connection to refer to the concept of a 'debt' for a sum due is
to be found in Wehh v. S1emo11. [1883] 11 QBD 518 where
Lindley, L.J .• said :" .... a debt is a sum of money which is now H
payable or will become payable in the future by reason of a
522 SUPREME COURT REPORTS 'I 992] I S.C.R.
A present obligation". There must be debitum in praesenti;
solvendum may be in praesenti or in future - that is immate-
rial. There must be an existing obligation to pay a sum of
money now or in future. The following passage from the judg-
ment of the Supreme Court of California in People v. Arguello,
[1869] 37 Calif 524, which was approved by this Court in
B Kesoram Industries v. Commr. ~(Wealth Tax, (1966] 2 SCR
688 (AIR 1966 SC 1370), clearly brings out the essential char-
acteristics of a debt.
"Standing alone, the word 'debt' is as applicable to a sum of
money which has been promised at a future day as to a· sum
now due and payable. If we wish to distinguish between the
c two, we say of the former that it is a debt owing, and of the
·latter that it is a debt due".
This passage indicates that when there is an obligation to pay a
sum of money at· a future date, it is a debt owing but when the
obligation is to pay a sum of money in praesenti it is a debt
D due. A sum due would, therefore, mean a sum for. which there
is an existin~( obligation to pay in praesenti, or in other words,
which is presently payable. Recovery of such sums is the sub-
ject-matter of Clause 18 according to the heading. That is the
dominant idea running through the entire Clause 18".
E We will now refer to Venkataramiya's Law Lexicon and Legal Max-
ims Vol. I, 713, 714. ''.Due" - means payable immediately or a debt con-
tracted but payable at a /illure lime .. In Wharton's Law Lexicon, 14th
Edn., its meaning is stated to be "anything owing. That which one con-
tracts to pay er perfonn to another; that which law or justice requires to be
paid or done. It should be ohse1wd that a debt is said to he 'due' the
F instant that it has existence as a debt; it may be payable at a fi111tre time".
Therefore it cannot be contended on the strength of Section 530 'due' and
'payable' is one and the same even under S.732 (A). However, as con-
tended, if the liability to pay interest arises from the date of allotment and
the grace period after eight fays. what is to happen in cases where perinis-
sion is refused by the stock exchange? For the grant of such pennission 10
G weeks are available. Therefore, a company making allotment prior to the
grant of permission cannot be mulcted with the liability when the section
itself comes into play upon the grant of pennission. Therefore, some
definite date is required. It cannot be lest sight of that. where pennission is
refused in the first instance there is also the right of appeal under Section
22 of the Securities Contracts (Regulations) Act, 1956.,This too, has got
H an important bearing. It cannot be held that after allotment the mechanics
RAYMONDfYNTHETJCS v. U.O:I. [MOHAN, J.] 523
of refund would come into play and again after rejection of permission, A
the money on all applications should be refunded once over again.
··,.:--
Equally, ihe contention of Mr. Anil Divan that the stock exchange
will have power to extend the time cannot be accepted. It may be a
practice to do so. But it does· not mean the 'stock exchange can act con-
trary to clear wording of this section. More so, when Sub-section (4) is B
cl.ear in its terms. Merely because the intending applicants agree to abide
by the prospectus that cannot be binding in the teeth of this Sub-section.
For the sake of completion, reference may be made to the corre-
sponding provision of ·English Law. Buckley on the Companies Acts, 14th
Ed. Vol.I, while dealing with Section 51 which is the corresponding provi- · C
sion states as follows :-
"The Act does not require the prospectus to fix any time for
closing the subscription lists and, unless and until an issue is
fully subscribed, there is nothing in. law to require the ·com-
pany to close the lists. It is the common practice, however, at D
any rate in the case of prospectuses issued generally, to state
in the prospectus that the lists will be closed on or before a
particular .date. In any case to which this section applies the
company will, by reason of sub-s(3), be unable to employ any
money received from shareholders until either pennission to
be listed has been obtained, or the lists have been closed and E
the period indicated in sub-section (I) has expired without the
permission h:iving been refused. Note that the sub-section does
not say, 'if the permission has not been granted before the
expiration of three weeks etc.' Presumable in practice the
stock exchange, when it has an application for pennission to
be listed under consideration and has not either granted or F
refused permission within the three weeks period indicated
above, will notify the applicant under sub-section (I) of an
extension of the period. ·
An allotment within this section is void, not voidable as in an
allotment in breach of Section 47" sub-section (3) in Re Nanwa G
Gold Mines, Ballcmtyne v. Nanwa Gold Mines Lrcl. applica-
tions to subscribe foir shares were invited on the footing that,
if a resolution for reduction of capital was not pas.sed or not
confirmed by the court, the application moneys would be re- -
funded and meanwhile woulc\ be retained in a separate ac-
count. The 1noneys were in fact put in a separate account in fl
the names of the company and its registrars. The conditions
524 SUPREME COURT REPORTS [1992] I S.CR.
A were not fulfilled and shortly afterwards a receiver was ap- )
pointed in a debenture-holders' action. Harman J. held that the
moneys in the separate account were repayable to the subscrib-
ers in full, basing his decision on the terms of the invitation
and not on the provisions of this sub-section; but he expressed
"
the view that the payment into a separate account in compli-
B ance with the sub-section would probably have the same ef-
fect". ·
Palmer's Company Law, 1982, Vol I, 264 states as follows:-
"Refusal of Application to Deal - Where a prospectus states
that application has been or will be made for the shares or
c debentures to be dealt with on the stock exchange, any allot-
ment made on an application under the prospectus shall be
void.
(I) ·if permission has not been applied for before the third day
after the first issue of the prospectus; or
D
(2) if permission is refused before the expiration of three
weeks (subject to the extension by the stock exchange to
six weeks from the date of the closing of the subscrip:ion
lists (Sec. 51 (I).
It should be noted that under case (2) above, the allotment is not
E void if the stock exchange merely defers the decision on permission to
deal, or does not arrive at a decision within the stated time.
During the periods stated in cases (I) and (2) above, the application
money received by the company from shareholders who applied for shares ·
has to be kept on separate account (Sec. 51 (3) ; "that appears", as Hannan
F J. observed in Re Nanwu Gold Mines Ltd, "to be an attempt to erect, so to
speak, by statute a kind of trust for applicant", consequently, the applica-
t.ion money thus kept on separate account does not fonn part of the gen-
eral assests of the company which are charged by a debenture secured by
a tToating charge. The relationship between the applicants and the com-
pany which holds the application moneys on separate account is that if
G bailors and bailee, and not of creditors and debtor".
Now, we will refer to the case in Nunwu !iold Mines Ltd. flallantyne
v. Nanwu Gold Mines I.Id., (1955] I W.L.R. 1080@ 1085.
"Sub-section (3) provides that where money is sent in on a
H provisional application: "All money received as "aforesaid shall
RAYMOND SYNTHETICS v. U.0.1. [MOHAN, J.) 525
be kept in a separate bank account so long as the company A
may become liable to repay it under"the last foregoing sub-
section; and, if default is made in complying with this sub-
section, the company and every officer of the company who is
in defnlt shall be liable to a fine not exceeding five hundred
pounds". That appears to be an attempt to erect so to speak, hy
statute a kind of trust forapplicants in a case of this sort. It is B
irrelevant here, because in this case the directors promised to
do this very thing; No doubt that was only a compliance with
the statute; but they did promise to do so and I think that their
promise is of contractual effect, so I need not consider whether,
if there was no promise but only the statutory obligation, the
position would be the same. I incline to think it would be so, c
and that the object of section 5 I (3) was to provide protection
for persons who pay money on the faith of promises of this
kind".
As to the present position with regard to the liability to refund under
Sec. 73 2(A) it is important to bear in mind that two notifications have
D
come to be issued in exercise of powers conferred under Section 642.
Notification No. GSR 614 (E) dated 3rd October, 1991, called the
Companies (Central Govenunent's) General Rules and Fonns (Second
Amendment), I99 I, which came into force on Ist November, I991. In the
above notification it is stated as under:-
E
"If the company does not receive application money for at
least 90% of the issued amount, the entire subscription will be
refunded to the applicants within ninety days from the date of
closure of the issue. If there is delay in the refund of applica-
tion money by more than 8 days after the company becomes F
liable to pay the excess amount, the company will pay interest
for the delayed period, at prescribed rates in sub-section (2)
and (2A) of Section 73. No statement made in this Fonn shall
contravene any of the provisions of the Companies Act, 1956,
and the rules made thereunder".
"Signature of Directors" G
Again, notification No. S.O. 666(E) dated October 3, 1991 issued
under sub-section (l) of Section 641 with amendments in Schedule U to
the said Act, under Part I General Infonnation, stated as under:-
"( t)" Declaration about the issue of allotment letters/refunds
H
within a period of l 0 weeks and interest in case of any delay
526 SUPREME COURT REPORTS [19921 .1 S.C.R.
A in refund at the prescribed rate under Section 73(2)/2A"
Thus, the liability gf the company to repay the excess amount under
section 73(2A) will arise only on the expiry of I 0 weeks from the date of
the closure· of subsc.iption Iis.ts ..The interest begins to accrue thereupon at
the end of 8 days. ·
B As to the meaning of the word "forthwit!i", we will now refer to
Bouvier's Law Dictionary for the meaning of the word "forthwith". "FORTH-
WITH. As soon as by reailonable exertion, confined to the object, it may
be accomplished. (Approved in Dickerman v. Trust Co., 176 U.S. 193, 20
Sup, Ct. 311, 44 L.Ed. 423). This is the import of the term; it varies, of
course, with every particular cases; 4 Tyrwh. 837; Edwards v. Ins Co., 75.
c Pa. 378. See Seammon v. ln.t Co., IOI, Iii 621; II H.L. Cas. 337. Bennect
v. Ins 67 N.Y. 274; I'ennsylvanis R.Co. v. Reichert, 58 Md. 261; Meriden
Silver Plate Co. v. FlmJ' 44 Ohio St. 437, 7 N.E. 753. It is not as promptly
as immediately; in some cases it might mean within a reasonable time; 7
Dow!. 789". We will also refer to 193 Soutem Reporter. 339 and 16
Soutern Reporter 33 @ 35 Col I. "As regards compliance "'.ith statute·
D requiring petition for judicial review of an executive committee's denial
of primary election contest to be filled "forthwith" the tenn "forthwith" is
a relative one and 1neans within such tirnc as to pennit that which is to be
·ctone, to be done lawfully and according to the practical and ordinary ·
cowse of things to be performed or accomplished. and it is not to be used
by way of a penalty when accidental interventions of which party is not to
E
be charged with foresight have upset what otherwise would have been
reasonable calculations regarding available time. Laws 1035, Ex. Secs c.
IO". "Forthwith" is not susceptible of a fixed time definition, and the
surrounding facts and circu1nstances 1nust be taken into consideration in
determining the question, and forthwith may be minutes, hours, days or
even weeks". Therefore it cannot ·be said that "forthwith" means E.O.
F
inst anti.
It cannot but be held that the payment of interest is only compensa-
tory mid not penal. Merely because clause JO to which a reference has
~lready been made uses the word "penal" it cannot be amount to penalty.
G · An useful reference cm1 be made in Malwlax111i Sugar Mills Co. lid. v.
Co111111issirmer '!/'Income Tax, /le/hi, Nell' fJelhi, [1980] 3 SCR 421. "4.
Penalties - if any person defaults in payment of cess imposed under sub-
section (I) of Sec. 3, or, contravenes any provision of any rule made
under this Act, he shall without prejudice to his liability therefore under
sub-section (5) of Sec. 3 be liable to imprisonment upto six months or to a
H fine not exceeding rupees five thousand or both and in the case of con-
tinuing contraventio in to a further fine not exceeding rupees one thousand
KA YMOND SYNTHETICS v. U.0.1. [MOHAN, J.] 527
for each day during which the contravention continues". It is apparent that A
section 3(2) requires the payment of cess on the date prescribed under the
rules. Rule 4 of the U.P. Sugarcane Cess Rules, 1956 provides that the
cess due on the sugarcane entering into the premises during the first
fortnight of each calendar year must be. deposited in the government treas-
ury by the twenty second day of that month and the cess due for .he
remainder of the month must be deposited before the seventh day of the B
next following month. If the cess is not paid by the specified date, then by
virtue of s. 3 (3) the arrear of cess will carry interest at the rate of six per
cent per annum from the specified date to the date of payment. Section
3(5) is a very different provision. It does not deal with the interest paid on
the arrears of cess but provides for an additional° sum recoverable by way
of penalty from a person who default in making payment of cess. It is a C
thing apart from an arrear of cess and the interest due thereon.
Now, the interest payable on an arrear of cess under s. 3(3) is in
reality part and parcel of the liability to pay cess. It is an accretion to the
cess. The arrear of cess "carries" interest; if the cess is not paid within the
prescribed period a larger sum will become payable as cess. The enlarge- D
ment of the cess l.iability is automatic under section 3(3). No specific
order is necessary in order that the obligation to pay interest is as certain
as the liability to pay cess. As soon as the prescribed date is crossed
without payment of the cess, interest begins to accrue. It is not a penalty
.for which provisions has been separately made by s. 3(5). Nor is it a
penalty within the meaning of s. 4, which provides for a criminal liability E
and a criminal- prosecution. The penalty payable under s. 3(5) lies in the
discretion of the collecting officer or authority. In the case of the penalty
under s. 4, no prosecution can be instituted unless, under s. 5(1), a com-
plaint is made by or tinder the authority of the Cane Commissioner of the
District Magistra•e. There is another consideration distinguishing the in-
terest payable under s. 3(3) from the penalty imposed under s. 3(5). Sec- F
tion 3(6) provides that the officer of authority empowered to collect the
cess may forward to the Collector a certificate under his signature specify-
ing the amount of arrears including interest due from any person, and on
receipt of such certificate the Collector is required to proceed to recover
the amount specified from such person as if it were an arrear of land
revenue. The words used in s. 3(6) are "specifying the amount of arrears G
including interest", that is to say that the inierest is part of the arrear of
cess. In the case of a penalty imposed under s. 3(5), a separate provision
for recovery has been made under s. 3(7). Although the manner of recov-
ery of a penalty provided by s. 3(7) is the same as the manner of recovery
provided by s. 3(6) of the arrears of cess, the Legislature dealt with it as
so1nething distinct fro1n the recovery of the arrears of cess including H
528 SUPREME COURT REPORTS (19921 I S.C.R.
A interest. In truth, the interest provided for under s. 3(3) is in the natc•e of
compensation paid to the Govenunent for delay in the payment of cess. It
is not by way of penalty. The provision for penalty as a civil liability has
been made under s. 3(5) and for penalty as a criminal offence under s. 4.
The Delhi High Court proceeded entirely on the basis that the interest
bore the character of a penalty. It was according to the learned Judges
B "penal interest". The learned Judge failed to notice s. 3(5) ands. 4 and the
other provisions of the Cess Act".
The last question will be that in view of the clear tenns of th~ statute
whether the administrative inconvenience could be pleaded. This could be
decided with reference to the case in San} eel' Coke Manufacturing Co v ..
c Bharat Coking Coal Ltd. & Another, [1983] 1 SCR 1000 @1029, as
follows:-
" .... But in the ultimate analysis, we are not really to concern
ourselves with the hollowness or the self-condemnatory nature
of the statements made in the affidavits filed by the respond-
D ents to justify and sustain the legislation. The deponents of the
affidavits filed into Court may speak for the parties on whose
behalf they swear to the statement. They do not speak for the
Parliament. No one may speak for the Parliament and Parlia-
ment has said what it intends to say, only the Court may say
what it the Parliament meant to say. None else. Once a statute
E leave.s Parliament House, the Court's is the only authentic voice
which may echo (interpret) tl1e Parliament. This the court will
do with reference to the language of the statute and other
pennissible aids. The executive Government may place before
the court their understanding of what Parliament has said or
intended to say or what they think was Parliament's object and
F all the facts and circumstances which in their view led to the
legislation. When they do so, they do not speak for Parliament.
No Act of Parliament may be struck down because of the
•
understanding or misunderstanding of Parliamentary intention
by the executive government or because their (the Govern-
ment's) spokenmen do not bring out relevant circumstances
G but indulge in empty and self-defeating affidavits. They do nor
and they cannot bind Parliament. Validity of legislation is not
to be judged merely "by affidavits filed on behalf of the State,
but by all the relevant circumstances which the court may
ultimately find and more especially by what may be gathered
from what the legislature has itself said ... "
H
RAYMOND SYNTHETICS r. lJ.0.1. iMOHAN, l.I 529
Therefore, it has to be held that administrative inconvenience can A
· hardly be any ground.
Viewing the statutory provisions from the above perspective, I agree
with my learned brother that the liability to repay the excess amount arose
on November I, 1990 and the liability to pay interest arose on the expiry
of eight days from November I, 1990. B
ORDER
For the reasons stated by us in our separate but concurring judg-
ments dated 4.2.1992, we allow the appeal to the limited extent indicated
by us and the judgment of the High Court shall stand altered accordingly.· C
In the circu1nstances of this case, we n1ake no order as to costs.
V.P.R. Appeal allowed.
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Companies Act 1956"Sign in to search